Opinion: Putting Liberal thinking into practice on taxation

Liberal thinking on tax is based on the principle both that the state has a duty to protect the poor and vulnerable, and that the state can help bring the best out of each individual.

The practical aim of Liberal Democrat tax policy therefore is to help to lift the less well off towards the average. This is not achieved only by handouts – which would be Labour’s priority – but by having a tax system that encourages work and aspiration for the lower paid.

Liberal Democrats are implementing our manifesto commitment of a £10,000 income tax threshold. This is a figure rather than a principle. The more compelling liberal philosophical argument would be for the tax threshold to be set at the full time annual minimum wage, as set out by Nick Thornsby here.

No-one should underestimate the fundamental shift in attitude and approach that will flow from this idea. It encourages aspiration, it clarifies the role of benefits as a safety net, and it stops the bad practice of the state taking with one hand while giving with the other.

Raising the tax threshold reduces the amount of income tax the state receives. A consequence of this in difficult times like now is that the 20% band could narrow, and the 40 % band will start lower, so that the tax tipping point is some level above the average wage.

Liberal thinking would support this, because Liberal Democrats believe that the poor should pay proportionately less tax than the better off. This is the principle of progressive taxation, and on this point, Liberal thinking differs from Conservative thinking.

The debate about a 50% income tax for the very rich should have one guiding principle. The very rich should under no circumstances be paying proportionately less tax than anyone else. All pragmatic discussions about the levels of income tax or capital gains tax for the very rich should be within the context that they pay their fair share as part of either being British, or living and working in Britain.

These ideas on tax are just an example of putting modern policy questions within the context of historic liberal ideas, and is the purpose of my blog. When people ask ‘What do the Liberal Democrats stand for?’ I want people to know the answer.

* William Hobhouse has been a Lib Dem member since 2005, and was parliamentary candidate in Blackley and Broughton (Manchester and Salford) in 2010. His day job is in manufacturing industry with his own business, Composite Textiles Ltd in Rochdale, since 1994.

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3 Comments

  • Finally some sensible thinking on taxation that I can agree with

  • William Hobhouse 28th Sep '11 - 5:51pm

    Thanks Philip – it’s only a few ideas, but I think it helps to put our ideas within the context of progressive liberal thinking – otherwise it’s just so easy to be derailed in government by someone else’s persuasive argument of the moment.

  • While we are still waiting for the £10k tax threshold (preferably beyond its arrival we need to have the 10% lowest Tax band re-instated. That would help the poorest and most vulnerable people NOW. The suggestion made by Danny Alexander that the tax threshold should be £12,500 rather than £10k is a much more realistic figure based on the premise that, by the time it is actually in force, the value of £10k will be lower than it is now.

    I called for this £10k tax threshold years ago at a Conference Q & A session when Charles Kennedy was Leader of the Party – it is worth far less now! What is taking us so long to bring complete fairness to the tax system?

    I think the Party would gain much more credibility if this was to be moved on a bit faster than it is at the moment – we would gain more respect from the poorer and most vulnerable members of our society too. If they thought that the Party was truly on their side rather than against them (as we appear to be now) the Party could just possibly gain more votes.

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