Opinion: The Lib Dems on tax – progressive, distinctive and popular

The Liberal Democrat conference tax policy motion is based on the report of the Tax Policy Working Group, which I chaired. The Group was established by the Lib Dem Federal Policy Committee after last year’s conference had approved a pretty comprehensive policy covering the principles which we wanted to underpin our tax policy and specific policies to bring these principles to life. We summarised that approach under the heading “fairer, simpler and greener”.

Last year’s policy paper did however leave some issues unresolved. And we also had to respond to the Budget.

The first issue we discussed was property tax. Here we have fleshed out proposals to move from the uniform business rate to site value rating for business property. On domestic property, we reiterated our support for Local Income Tax (LIT) and also propose that, in the longer term, a system of land value taxation should also be introduced.

We looked at simplifying the system and we make three proposals: –

1. We would replace the extremely complicated rules against tax avoidance by introducing a General Anti-avoidance Rule which would make it illegal to structure transactions for the principal purpose of avoiding tax. This would allow us to tear up about 500 pages of tax legislation

2. We would replace the highly complicated system of capital allowances with one based on tax deductible depreciation. This would simplify the system and raise enough revenue to allow us to reduce corporation tax by a further 1%.

3. And we would reduce the size of the tax return for the majority of those whose tax affairs are straightforward – over six million taxpayers – by cutting out all the irrelevant questions. All they would need to complete is a form the size of a postcard.

To make the system fairer, we’ve proposed:

* abolishing capital gains tax taper relief. This would mean that we were taxing income and capital gains at the same rate
* making non-doms pay capital gains tax on the property they buy and sell in the UK and simplifying and tightening up the eligibility rules for non-dom status
* closing the loophole which allows rich individuals to “move” their houses offshore and pay only a fraction of the stamp duty they should be paying
* extending the inheritance tax rule on gifts from 7 to fifteen years to reduce the amount of avoidance of the tax. This will provide funds to allow us to raise the threshold towards £500,000

The Budget adopted our 2006 policy to cut standard rate income tax by 2p and also abolished the 10p starting rate. This effectively gave us several billion pounds “spare” from the proceeds of our proposals on environmental taxes and making the system fairer. We decided that all this revenue should be used to cut the basic rate of tax by a further 4p – to 16p. This means that even when LIT is introduced, most people won’t be paying a higher rate of total income tax overall.

Our package is extremely progressive, distinctive and, we believe, popular. It makes the Tories’ unwillingness to commit to any particular tax change look pathetic. I believe it deserves Conference’s wholehearted support.

* Dick Newby is a Liberal Democrat peer, and chaired the party’s tax commission.

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10 Comments

  • Geoffrey Payne 11th Sep '07 - 1:31pm

    I can’t believe what I am reading. We really should get some perspective here about the elderly.
    It is true that some of them have paid off their mortgages and are doing well.
    On the other hand, many live in council estates, by themselves and have a very meagre income. Many have health problems from which they cannot easily move house even if it is a good idea.
    The elderly are the fastest growing section of the electorate and are most likely to vote. Indeed in many parts of the country they alone keep the Liberal Democrats going.
    A tax system that benefits the elderly should be supported by the Lib Dems as one very effective way of combatting poverty, which is something we sign up to in the preamble of our constitution.

  • I have some sympathy for the views expressed above, but the other side to council tax is council tax benefit. The taper on this does constitute a disincentive to work – which is what happens when you combine a tax based on cpatial values with a benefit system based on income. So I don´t think that moving to LIT purely benefits widows.

    If you really want to move forward though you probably need a complicated transition – winding one tax down will a second takes over.

  • Andrew Duffield 11th Sep '07 - 8:36pm

    For those voting reps attending Conference – particularly those of working age who are struggling to afford a home of their own – a request for a separate vote has been submitted (pending acceptance) to delete everything after “ability to pay” in line 25 of the Tax Motion (F24).

    This is firstly intended to correct the impression that Lyons supported LIT as fairer than property taxation when he quite clearly didn’t:

    “I have some concerns about whether abandoning property taxes for income taxes would be fair; in practice this might simply replace one sort of unfairness with another” (7.186).

    Lyons also stated (as Federal Conference acknowleged just 12 months ago): “Income is not the only measure of fairness. Arguably, fairness in relation to income could in fact be the wrong question to ask of a property tax, since some property taxes by nature aim to tax the consumption or return on property” (7.17).

    In other words, a fairer property tax would be one that tapped the UNEARNED wealth which derives from locational benefit alone.

    Lyons did not favour LIT in his recommendations to Government and nothing in his report suggests that he regards it as fairer than a reformed property tax.

    Secondly, we should not let ourselves be identified as the Party which regards all domestic property taxes as unfair. The Tax Commission dodged domestic property taxation (apart from its arbitrary million pound “envy tax” – thankfully now ditched) and is attempting to claim that “fleshing out” existing policy for SVR to replace business rates equates to the “further policies for land taxation” which last year’s Conference demanded.

    In 2006, Conference recognised that property wealth is associated with “entrenched inequality” and growing generational inequity. The “further work” on land taxation has simply not been done.

    Conference should send a message that there is unfinished policy business on land tax. Deleting this reference to LIT is a simple and effective way of doing so. It will not change policy as such but, along with LDYS’s rejection of LIT at their Conference, it will certainly present a question mark over whether LIT is any longer consistent with a Party that is supposedly serious about shifting the burden of tax – off Britain’s young and asset-poor working families instead of onto them.

    Tax Commission 3 anyone?

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