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
If Local Income Tax is popular, I’m your Aunt Fanny.
The problem is it isn’t nearly as progressive or distinctive as it could have been. I don’t doubt that among the grey haired elite that these policies are aimed at, Local Income Tax is fantastic as they won’t be paying it. But everyone else…?
Notwithstanding the fact that younger people really need to use the ballot box if they don’t want political parties to squeeze them for every last penny, it really is a shame that we persist in chasing the over-60s vote when all polling suggests that when push comes to shove this is not fertile ground for the party.
Precisely.
Whenever I hear little old ladies on the radio complaining about how much it costs to heat their big house which they live in alone it makes me cringe. The poor dears, perhaps they don’t need to live alone in a big house like that whilst young people can only just afford to rent somewhere to live let alone buy.
Local Income Tax is a sop to pressure groups who campaign for the elderly, its not designed to actually make the country ‘fairer’, unless working gives one some sort of ‘unfair’ advantage…
Can somebody explain to me what it is about this ‘long term commitment’ to LVT, that would enable me to distinguish it from a long-term opposition to LVT.
We have a carbon-neutral by 2050 policy proposal, which is fairly long term, but contains lots of details about how we get there.
Where is the deadline and the detail that would get us to LVT by 2050?
Interesting take on this by Guido. True to form perhaps, Tories focussing on death taxes, which by definition applies even now only to the wealthier people in society (30%+ of people own no financial assets at all etc) while we are cutting taxes for everyone. That much is good.
We must also press the line that our reform of NNDR will implement what the Tories appear today to be wanting to do by making people pay for parking – the proper rating of our of town supermarket car-parks.
But I do not believe that the TCII fulfilled the spirit of what conference last year asked them to do. LVT is as far away as ever – yet we will still be increasing house prices by removing property taxes entirely.
LVT would have enabled us to abolish IHT properly (whilst continuing to capture the “bad wealth” built up through land value increases – which are not taxed by any other means – and letting off properly productive investments) and prevent LIT raising the bar yet again for people in need of housing.
Exactly Joe! We cannot have green taxes without LVT IMHO either. I do not really understand why Chris Huhne has not been pushing this.
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.
Right – by pushing up the price of property for everyone else by another full income multiple?
The Oxfordshire study showed that there are ways of making LVT work such that those in not very valuable housing would pay little or nothing at all. In fact I’ve proved that you could take everyone out of lower quartile housing values out of tax altogether and still raise as much as all personal and property taxes put together.
Furthermore, for those who are in valuable property but on low incomes there are many ways of deferring such a tax until the asset could be realised – usually on death.
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.
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?