Radical Liberalism and Taxes

Radical Liberalism is a distinctive philosophy that presents a superior alternative both to capitalism in its established form and to socialism. Existing capitalism, as propounded by the Conservatives, and socialism as proposed by Labour, are systems both based on the concentration of property and power in few hands.
The central principles of capitalism in its purest form are the free exchange of goods in an unregulated market; limited taxes to pay for limited government, and
private ownership of property.
The central principles of socialism are government control or regulation of the market; high taxes to pay for expanded government services; and government ownership of major industries (particularly large industries that are prone to monopoly control).
The focus of radical or social Liberalism is the free exchange of goods in markets, with limited regulation of commerce; a fair distribution of economic surplus created between labour and capital; moderate levels of tax and private ownership of property, but mitigated by taxes that address inequalities of wealth.

Modern capitalism has failed to reconcile fairness with efficiency. While capitalist policies increase national income, they also cause extreme inequality.
Socialism is inefficient. Government monopolies are rarely any better than private monopolies. Most policies ostensibly designed to help the poor by equalizing incomes have the negative side effect of reducing the productive power of the economy. We have seen both China and Russia shift away from socialism to a form of state capitalism in recent decades, perhaps soon to be followed by Cuba and North Korea.
It should be possible to unite fairness and efficiency by taxing away the rewards of privilege so that people can earn money only by being productive. Since much of the power of multi-national corporations derives from those privileges, proper taxes could reduce that power.
The economist, Paul Krugman, wrote a blog on the subject of monopoly rents last year https://krugman.blogs.nytimes.com/2017/08/31/monopoly-rents-and-corporate-taxation-wonkish/
“…corporate taxation probably doesn’t fall on returns to physical capital, but rather on monopoly rents. It doesn’t matter whether these rents were fairly earned through, say, investment in technology, or even whether the corporations earn super-high profits. As long as the local source of profit is some kind of monopoly rent, corporate tax incidence is going to fall on shareholders, not workers. …when someone tells you that changes in the world have made old-style corporate taxes obsolete, be skeptical. Some changes in the world may have made profit taxation a better idea than ever.”
If he is right, then it is monopoly rents earned by corporations we should be looking to tax and not increasing income taxes or national insurance on wages.
The financial crisis and its aftermath has left British Politics in a state of flux, but there remains a need for a coherent conception of an alternative economic system. The ideas of radical Liberalism with its underlying vision of a dispersive economic system to bring about a fairer distribution of economic surplus created between labour and capital, may yet furnish the resources for constructing such an alternative.

* Joe is a member of Hounslow Liberal Democrats and Chair of ALTER.

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  • Peter Martin 16th Jun '18 - 9:18am

    “Modern capitalism has failed to reconcile fairness with efficiency.”

    There’s an implicit assumption in this statement that there is a trade off between one and the other. However, let’s question that. If we have high levels of unemployment, underemployment, and poorly paid employment in our economy, as we have now, then unfairness and inefficiency go together.

    “Modern capitalism” is really a misnomer. It’s not much different from what we had in the thirties before the needs of a war effort swept aside the austerity inducing neoliberal nonsense that had actually created the social and political conditions in Europe which had brought about the war in the first place.

    So “modern capitalism” can’t even run with good efficiency even when that efficiency is obviously helping to decrease unfairness in society. To understand why we need to look at the economy from the POV of the 1% and ask if they really want a fairer society.

  • Peter,
    Krugman is thinking about the 1% when he writes “…we really need to think about monopoly rents. The usual way this story is told thinks of the corporate tax as a tax on returns to physical capital. The story then says that back in the old days, when capital mobility between countries was limited, domestic corporations really had no way to avoid the tax, so it did indeed fall on shareholders. But now, so the tale goes, we have highly mobile capital; if you tax it in any one country, it will flow out, making capital scarcer and driving down wages, until after-tax rates of return in that country have risen back to the world average.
    … much corporate taxation probably doesn’t fall on returns to physical capital, but rather on monopoly rents. As long as the local source of profit is some kind of monopoly rent, corporate tax incidence is going to fall on shareholders, not workers.
    Imagine a world in which all corporations are like Google or Apple: they invest resources in developing new products, then sell those products — in which they have a lot of market power — in various countries for well above production cost, which is the source of their profits. Cutting the tax rate on such profits won’t make them employ more people, driving up the demand for labor and hence wages; it will just let them keep more of their rents.
    A parallel: think of pharma, where companies develop a drug then sell it worldwide. Some countries use the bargaining power of their government health systems to get lower prices, some (mostly us) don’t; the countries that bargain for lower prices don’t pay any price in reduced access to drugs. Similarly, if you place a tax on profits earned from technological monopolies, you won’t lose access to the technology, you’ll just collect more taxes.
    And there’s a lot of reason to believe that market power is an increasingly big deal. Again, this doesn’t have to be unfair, and it could involve monopolistic competition without a lot of excess returns. The point is that no matter what the source and justification for market power, that power undermines the case that capital mobility will mean that cutting corporate taxes benefits workers.
    Instead of focusing on rising capital mobility as a reason profits taxes might fall on workers, maybe we should focus on rising market power as a reason why profits taxes fall on capitalists.”

  • Oliver Craven 16th Jun '18 - 1:04pm

    I would propose that fairness is efficiency when it comes to markets. One of the underlying principles of economics is that people are “willing and able” to buy up until a certain point and that this allows a proper distribution of resources. When we have the super-rich who can outbid anyone, even for frivolous uses of resources, then inequality in the distribution of resources results. in my mind it is imperative that both economic and political inequalities are constrained.

  • Katharine Pindar 16th Jun '18 - 5:32pm

    “It should be possible to unite fairness and efficiency by taxing away the rewards of privilege so that people can earn money only by being productive.” Joe, I seized on this sentence in your very welcome article as a clear and worthwhile aim, and now wish to know what our party is going to put forward in furtherance of this aim. I understood previously that substantial economic proposals are about to be produced, and that much will hopefully be achieved in adopting them at the next Federal Conference. But when I read that “a managerialist approach to the fair distribution of added economic value” seems to have sometimes affected the economic basis of social liberalism in recent times, I don’t understand what you mean, or what our socially-liberally inclined Liberal Democrats, who I hope form a majority of our members, should be thinking about that. Could you please explain for economic novices like me, and propose remedies? It would be much appreciated.

  • David Evans 16th Jun '18 - 6:41pm

    Joe, What do you mean by “the rewards of privilege” that you want to tax away? It would be very helpful if you could give us say half a dozen examples of a “reward of privilege,” so we consider what you mean.

  • David Evans 16th Jun '18 - 8:25pm

    Joe B, Now you really have me confused. Working on the assumption that we need to change US to UK, you seem to be implying we should “provide generous tax credits for corporations which invest in the U.K. and create jobs here.” However, what is the specific “reward of privilege” this is supposed to address? Indeed, with my internationalist liberal hat on I could consider that living and working in the UK is a massive privilege compared to living and working in most other countries in the world.

    I’m sure you don’t mean that, so can I repeat – It would be very helpful if you could give us say half a dozen examples of a “reward of privilege,” so we consider what you mean.

  • Peter Martin 16th Jun '18 - 9:32pm

    However we set certain taxes we do need to recognise what taxes are for. Whereas there’s probably just one reason for a local council, ie to get the money in, there are four main reasons for a currency issuing government.

    (1) as an instrument of fiscal policy to help stabilize the purchasing power of the pound. ie give it a value and prevent inflation. Examples would be Basic Income Tax, VAT etc. Generally speaking these taxes reduce aggregate demand and create the space for Govts to spend and hit but not exceed its inflation target and ensure the economy is functioning close to full capacity.

    (2) To affect or change the distribution of wealth and of income. We can set progressive income and possibly wealth taxes. We can have a mansion tax for example. Or a tax on luxury cars.

    (3) To penalise various industries (eg the big polluters) and products such as tobacco and alcohol which lead to anti social behaviours , smoking, drinking etc.

    (4) Taxes for a specific purpose. Hypothecated taxes. Such as departure taxes to pay for airports. Fuel taxes to pay for roads etc.

    There will always be some overlap. It may be that more taxes are collected to pay for roads than is strictly necessary to pay for roads. Taxes on cigarattes will also have an effect on aggregate demand. But generally speaking whenever we are proposing changes to the tax structure we should be clear about what we are trying to achieve. Do we want to regulate aggregate demand or do we want to do something else? It’s generally a mistake to propose a category 2 tax, say a mansion tax to ‘pay for’ the NHS. We should do that to reduce inequality. If that’s what we want to do.

  • I’m sorry, Joe, but your characterisation of Socialism and radical Liberalism is historically naive. Any serious political historian look at Edwardian politics would tell you that there was a strong strand of municipal level socialism in the ILP…. And indeed a great deal in common between the ILP and the radical wing of the Liberal Party in the House of Commons.

    As to more recent times the Liberal Party I knew in the early 1980’s was much more radical than the SDP who were very often pre-Blair Blair ires.

  • David,

    privilege is any legal benefit or legal protection of tangible or intangible property rights afforded a commercial enterprise by the state. The market value of most large corporations today far exceed the recorded value of their net assets. As a consequence, returns on book assets are far in excess of what would be regarded as a normal return.
    As Krugman notes in his blog…much corporate taxation probably doesn’t fall on returns to physical capital, but rather on monopoly rents.
    The way these excess profits could be taxed in the UK is by exempting a normal return on assets from Corporation Tax and taxing profits above that level at a surchage rate. Dividends distributed to shareholders would then be subject to a withholding tax and taxed in full in the UK at the same income tax rates applicable to earned income (currently dividends are taxed at a lower level).
    Examples of privilege include exclusive use of radiospectrum bandwidths, patent protection, airport landing slots, banking licenses, oil and gas exploration rights (these are subject to Petroleum Revenue Tax).
    Most commercial land companies in the UK operate through Real Estate Investment Trusts and pay no corporation tax. These organisations would be subject to Land Value Tax in place of occupiers business rates and dividends would be taxed in full at investors marginal rate of income tax.

  • David Raw,

    I would’t disagree with your comment. My focus, however, was more on the post-war era of Jo Grimond. I am aware that the Young Liberals in particular represented a considerably more radical strand then the SDP cadre in the eighties.

  • Katharine Pindar 16th Jun '18 - 10:25pm

    Thank you for that clear explanation to me, Joe (though Katharine spelt correctly would be an additional favour). I know from a previous comment from you earlier this month that you would like to see a 50% Tax charge on interest earnings arising from the element of mortgage loans related to the acquisition of land, and a similar rate of Corporation Tax to be applied to the land element of all non-banks rental income. You generally wish the profits attributable to the land element of rents charged at a top rate of income tax of 50%. You have also told us that three separate pieces of work are underway in the party, on business tax, prospects for a land value tax, and options for a wealth tax, on which papers should be published in coming months with a motion in September. Do you expect your radical proposals spelt out above to be aired in any of these papers (with which I suppose you are involved), and if so, with which? How are they coming along? I hope your ideas are widely shared.

  • Thanks Joe, I think I am starting to get it – bit.

    So any legal benefit or protection is a privilege, if it applies to a commercial entity. But not if it applies to an individual or organisation not engaged in commerce?

    So Commercial Radio has privilege, as does satellite TV? Does BBC local radio or BBC TV? If a charity ran a radio station?

    Who has the privilege from a landing slot – the airport owner or the airline? Surely the landing rights go with the ownership of the airport (i.e. the fixed asset)? So isn’t the value in the land and buildings/runways etc not in a monopoly rent?

    I am a trustee in a small community charity, which owns a building (community centre) and rents rooms out to organisations for meetings, keep fit etc. Our ownership of the land and buildings is protected legally by the state (property law) – is that a privilege? If instead it was owned by a non-profit making organisation – I’m not sure? If owned by a profit making company, presumably a privilege?

  • Katharine,

    my involvement with policy development is in my capacity as Chair of ALTER, a Libdem affiliated organisation that lobbys for Land Value Tax and Economic Reform and as an administrator for the APPG on Land Value Capture.
    ALTER contributes to relevant consultations at conference (or by way of written submission) on Libdem Policy including input into the current work being undertaken around reform of business rates and corporate taxes, as well as the Scottish Libdems work on reform of local taxation in Scotland
    My comments on Libdemvoice are my own thoughts not necessarily ALTER’s agreed position but informed by it. It would be inaccurate to interpret any of these comments as previewing imminent policy proposals.
    As Chair of ALTER, I take the lead in highlighting concerns and encouraging wider debate on LVT. One such concern, among others like Housing policy, is our current policy position on funding of the NHS and Social Care. It appears that Theresa May is announcing increased funding of £20billion for the NHS in tomorrows papers to be partially funded by a non-existent Brexit dividend. Our current proposal of 1p on income tax to raise £6billion will now quickly become insufficient, and we will need to quickly develop updated costed and credible policy proposals that can gain public support.

  • David Evans,

    any legal benefit or protection is a privilege, whether a commercial entity or not.

    We are talking here, however, about organisations that are subject to corporation tax. Charitable income including donations and fundraising is exempt, but income from trading activities is not. Most charities will conduct trading activities through a trading subsidiary and donate profits to the Charity by way of a deed of convenant that keeps them out of the tax net.

    Monopoly rents will not arise in small business concerns. They are a feature of larger organisations that are in a dominant market position and in a position to set prices in the market that are significantly above the combined cost of production and cost of capital provided by lenders or investors for long term assets utilised in the business.

  • Katharine Pindar 17th Jun '18 - 12:46am

    I take your point, Joe, about our need now to update our policy proposals on the NHS and social policy, as well as combating the notion that Mrs May’s offer of £20 billion for the NHS can be in any way a Brexit dividend. However, while I understand your separation of your roles above, since you had mentioned last month that there were ‘three separate pieces of work’ going on in the party on business taxes, proposal for Land Value tax, and options for a wealth tax, I had hope that you were involved in both the LVT work (knowing that you chaired ALTER), and the proposed reform of business and corporate taxation. I hope that this is indeed the case and we shall soon hear more of these policy proposals and that they will be radical.

  • Steve Trevethan 17th Jun '18 - 8:03am

    Thanks for an interesting conversation!
    Where might the costings/estimates for the running of a socially and economically sound state be found?
    Can a state which relies upon starving nurses be considered efficient?
    What is the wealth base from which taxes could be raised?
    Can we know this with the current use of tax havens etc?
    Are we spending our tax revenues well?
    Was it economically sound to spend significant capital to help destroy Iraq and Libya and incur the recurrent costs of consequent terrorist and refugee problems?

  • Steve Trevethan 17th Jun '18 - 8:17am

    Might it help if we had reasonable, accessible estimates of what it costs to run a state which is socially and economically efficient?
    Might it help if we all knew the wealth base from which tax could be taken? Tax havens etc included.
    Do we spend our taxes well? Do our foreign military capital expenditures result in avoidable recurrent costs, as in addressing terrorism?

  • To me this is more about morality than efficiency. The basic problem is that money buys power and influence, thus legal frameworks are decided by the rich and the powerful. I sometimes wonder if expecting people to work day in and day out is really a nice thing to do. Coz, there are much nicer ways of spending one’s limited time on earth than wasting it on boring jobs for a few quid or a pat on the head. Maybe, what we really need to do is to find a way of increasing comfortable leisure, rather than piddling about with teeny rises in income?

  • Peter Martin 17th Jun '18 - 8:45am

    @ JoeB,

    “Examples of privilege include exclusive use of radiospectrum bandwidths, patent protection, airport landing slots, banking licenses, oil and gas exploration rights (these are subject to Petroleum Revenue Tax).
    Most commercial land companies in the UK operate through Real Estate Investment Trusts and pay no corporation tax. These organisations would be subject to Land Value Tax in place of occupiers business rates and dividends would be taxed in full at investors marginal rate of income tax.”

    I understand what you are getting at, but aren’t you over complicating it? I can tell from some of the other comments that people aren’t clear about all this. If you don’t like the idea of anyone owning spectrum, banking licences, gas exploration rights etc (maybe land too?) why not just nationalise them and rent them out, for a specific time period, to anyone who wants the use of them? The Govt would put them up for auction and that way gets the best price. It’s so much simpler than a myriad of complex taxes and fees that would continually have to be levied and chased up for payment.

    You’d be creating a tax lawyers’ and tax-avoidance-accountants’ paradise!

    ‘Government monopolies are rarely any better than private monopolies.’

    This is a matter of opinion. But, given that a monopoly has to be one or t’other we should have Government monopolies even if they are only slightly or occasionally better.

  • Gordon Lishman 17th Jun '18 - 9:22am

    I’m not clear what marks out this ”radical liberalism” from mainstream liberalism.
    Why start this debate again from scratch when the economics chapters of the recent SLF book cover the same territory? If we keep on having the same debate and not getting any further, our party will stay bogged down at the same point.

  • The main issue at present is inequality and capitalism has not much to offer here. The railways saga shows that when profit is the motive, public services suffer. As a country we need to ensure all our citizens enjoy a reasonable quality of life. Education and training however excellent cannot always do this and there needs to be a reasonable safety net that maintains an incentive to gain an income.

  • Peter Martin,

    market domination by oligopolies of a relatively few firms is endemic to modern capitalism. While there may be arguments for natural resource monopolies to be brought under state control, Nationalisation or a command economy is inimical to Liberalism. Regulation of free enterprise seeks to harness the power of markets, promote competition and tax revenues for the provision of pubic goods.

    The economic effect of corporate taxes (CT) depends largely on the system adopted. A classical system does not differentiate between a company’s distributed and retained earnings and its shareholders are treated as being independent of the company. in this system, the company is liable to CT on its income and gains, distributed or not.The shareholder is liable to income tax on dividends and capital gains tax when shares are sold at a profit. This was the system from 1965 to 1973 and is broadly what we currently have in the UK.
    The rationale for taxing company profits include the privileges of limited liability; equity between unincorporated business and incorporated businesses, revenue raising and importantly it already exists in many jurisdictions around the world.

    Up to 1965, the UK tax system did not differentiate between incorporated and unincorporated businesses, both paid income – but companies did not have personal allowances and paid income tax at the basic rate. The system brought in after 1965 had defects resulting in the double taxation of dividends resulting in companies becoming highly geared as debt capital became more tax efficient than equity capital. We have seen these effects multiply in recent years with the lower cost of debt financing and a explosion in share buybacks by large listed companies. The Mirrlees review, building on the earlier Meade review, sets out recommendations to tackle these problems including a tax allowance for return on equity capital. That addresses the efficiency issue.
    My argument is we need to increase the level of taxation (as a necessary corollary of the need for increased spending on public services and housing) and the incidence of that tax needs to fall on the broadest shoulders i.e. where excess profits over and above normal returns to produced capital are being made and/or wealth is being accumulated.

  • Gordon,
    “I’m not clear what marks out this ”radical liberalism” from mainstream liberalism”. Therein lies the problem – neither is the general public who tend to think of Liberal Democrats in terms of either – “there all the same, it makes no difference which party is in government.” or the Tories are the party of business, Labour is for the workers, the Libdems are well-meaning people but don’t seem to stand for anything in particular beyond wanting to stay in the EU.

    To get a distinctive message across it has to be reflected in clearly differentiated manifesto policies and campaign literature- particularly in the sphere of economics, taxation and key public services. The SLF book will be an important contribution to developing those policies but ultimately these decisions will be made by members at conference.

    The Brighton conference will consider or consult on a number of issues around tax policy (Business rate reform, Corporation Tax and perhaps wealth taxes) – hence the need to continue to debate these issues and make submissions as policy is formed.

  • I (mostly) agree with Glenn above. This thread and most of the comments are about the best way to extract tax for the government to spend. While this is important, it is only a means to an end. We should start with what we want to do to improve people’s quality of life and the environment they live in, and then move on to the tax and spend necessary to support that.

    If we don’t have a strategy for making ordinary people better off, and for changing the “system” to allow individuals to exercise more control over their own lives, then what is the point of us Liberals?

  • Peter Martin 17th Jun '18 - 7:43pm

    @ Joe B,

    “Nationalisation or a command economy is inimical to Liberalism.”

    “It should be possible to unite fairness and efficiency by taxing away the rewards of privilege”

    In my experience, a tax bill from is a demand from the Govt to cough up some money. You don’t get much more “command economy” than that! But that’s OK as far as Liberalism is concerned? Especially if the rich are paying proportionately more than the poor. This is what needs to happen if society is to be reorganised in a fairer and more equal way.

    I didn’t actually say that Nationalisation should be without compensation. But to achieve a redistribution of wealth, it can’t involve full compensation.

    But that’s a no-no because that’s what extremist socialists do and you’re much more reasonable liberals, right?

    However, if I’m a large landowner I think I might prefer the socialists to be in government because at least I’ll get some compensation if the government decide to buy me out. With you lot I’ll just get a big tax bill which I’ll be struggling to pay unless I sell some land into a market which is ultra depressed because everyone else is in the same predicament!

  • @JoeB,

    Why not just replace both corporation tax and business rates with a land tax? Surely this would be the best method of introducing the tax into the tax system since this wouldn’t affect home owners who are very resistant to changes in property taxes, it’s a fair tax, and the tax is near-impossible to avoid?

    No matter how much we talk about closing the loopholes in corporation tax we should acknolwedge that it’s very, very difficult to do. Capital is mobile and the internet has no regard for country borders (and rightly so), so it’s difficult to tax a company’s profits in this globalised world. One thing that I also dislike about corporation tax is that it significantly encourages centralisation. For example, if company A made the same profits as company B but company A is situated in the centre of London and company B is situated in some remote area of Wales, they both pay the same amount of tax even though company A uses a stronger amount of public infrastructure vs. company B. I know business rates tries to address this and we have a policy to replace it with LVT but why not just replace it and corp tax with LVT?

    With the money raised we should be looking to introduce a high Negative Income Tax (which is just UBI but implemented progressively), increasing bargaining power for all workers out there since if they choose to withold their labour they can still live freely, and this should raise wages since a worker can leave if company conditions are unsatisfactory, tipping the balance of power from companies to workers.

  • David Raw,
    the rationale for imposing taxes in a market economy such as the UK stems from government responsibilities that includes the provision of public goods. A pure public good is one that displays the following characteristics:
    (a) displays zero marginal cost, i.e. no extra cost is incurred in supplying the good to more than one person;
    (b) individuals cannot be excluded from consuming the good, even if they have no desire for it;
    (c) all members of society must consume the same amount, it cannot be rejected e.g. law and order.
    A good example of a pure public good is defence. The provision of national defence protects all members of society from hostilities at zero marginal cost, no individual can be excluded and it cannot be rejected by those who disagree in principal e.g. pacificts.
    If left to the market, individuals with no desire for the good would be unwilling to pay the price, yet at the same time they could not be excluded from benefiting; as a consequence a free market would be inefficient in the provision of public goods, and as a result they become the responsibility of the state.
    By contrast, Merit goods like health and education can be provided privately and we have a mix of pubic and private provision in the UK. If Merit goods were left completely to market forces merit goods would be under consumed, and so there is some merit in the state providing such goods as everyone benefits from living in a healthy and educated society i.e. there are external benefits in the provision of merit goods. Most developed countries do not, however, provide Universal Health Care through a Nationalised organisation but rather through a regulated private health care system funded by health insurance. This in the system in, for example, Germany, Switzerland, Hong Kong and Singapore – where patient care and outcomes surpasses by some measure that of the UK.

  • Zak,

    I would certainly agree with replacing business rates (and council tax) with LVT and applying LVT to undeveloped Land.

    A tax on excess monopoly profits is a tax on economic rents and is based on the same economic principles as LVT. As Paul Krugman notes …corporate taxation probably doesn’t fall on returns to physical capital, but rather on monopoly rents. Couples with Joseph Stiglitz’s propsed reforms to ensure that multinationals pay their fair share of taxes, by Taxing multinationals on a “formulaic basis” – analogous to the way that corporations are taxed by the states within the U.S., on the basis of their sales, employment and assets within each state; we would be able to tax companies like Amazon, Google, Apple and Starbucks on the basis of profits they make in excess of a normal return on the capital they have invested in the UK. As with Land Value Tax, as long as the local source of profit is some kind of monopoly rent, corporate tax incidence is going to fall on shareholders, not workers. As a consequence there is no deadweight cost that could deter employment or investment, just a fair contribution by market dominant companies to the infrastructure and public services they benefit from.

  • @JoeB,

    How would you determine what a ‘normal return on the capital they have invested in the UK’ looks like?

  • Some services should be provided by the state because they are vital for life. Water, power, health for example. It seems quite wrong to me that shareholders should profit from services without which people may die. So I see nothing wrong in the NHS, water, electricity and gas being state run monopolies.
    Railways could in theory be provided by the private sector. Our system used to be a one operator monopoly that worked well and had an exemplary safety record. Now it is mixed with the track being publicly owned and the trains (well most of them – with the exception of East Coast which keeps going back to the state) being franchises. This was supposed to be a far more economical way of running the railways because British Rail was, according to Tory propaganda, inefficient and heavily subsidised. In fact the current system, far from reducing costs, has resulted in subsidy to PRIVATE COMPANIES far in excess of what was paid to BR. I think it is immoral that commuters and the taxpayer bare putting money into the hands of private shareholders of rail companies.
    Liberalism is above all else economic, for a mixed economy, where what works is far more important than ideology. Nationalisation was first introduced by Gladstone when he created the Post Office in the 19th century.
    So of course Liberals don’t want to see a largely state owned, centralised economy, we believe in regulated free markets. What we don’t want to see is a dog-eat-dog free market where the already wealthy acre even more riches and he poor get trampled underfoot. Some public services owned and run by the state, or possibly run by consumer and worker owned mutuals, are totally compatible and should considered as part of the mix.

  • Zak,

    in the Mirrlees review it is termed an Allowance for Corporate equity (ACE). Companies typically calculate cost of equity using the Capital Asset Pricing Model = risk-free rate + (company’s beta x risk premium. See link for technical details https://www.investopedia.com/terms/c/costofcapital.asp.

    The ACE exempts the normal return on capital from corporate tax leaving only economic rents subject to taxation.

  • Peter Martin 18th Jun '18 - 8:27am

    @ JoeB,

    Yes I understand the rationale for taxes in normal sense. Everyone agrees, or nearly everyone, that the Government has to levy taxes to ‘pay for’ essential services – like the Armed forces. Although the extent of ‘essential’ is vigorously debated by various sections of society. There is no agreement on that.

    There is also no agreement on just how taxes should be used to level the playing field. Your idea of ” taxes that address inequalities of wealth” has to mean taking money off people just because you think have too much and not because you need it as spending money. That’s not the right way to look at macroeconomics, as you well know, but that’s the tone of this discussion.

    There’s really no difference, in principle, between seizing assets, ie nationalisation, without compensation (as the Trotskyists would like) and imposing draconian wealth equalising taxes on the owners of land and the other ‘privileges’ you’ve mentioned. ie Radio spectrum etc.

    It doesn’t necessarily mean these are bad ideas. But getting either of them accepted by the mainstream political parties, to the extent that they actually change anything very much, is unlikely short of a complete breakdown in the present system.

  • Military spending is not just about defence. It’s about selling arms and expertise. It can kill people, which I’m pretty certain is not a public good. On the other hand a joined up policy on railway networks or water that results in a better service, at a lower costs is a public good. As Mick Taylor argues, there is nothing innately illiberal about a mixed economy that includes public ownership. It seems to me that this was not seen as illiberal until fairly recently and that the somewhat dogmatic insistence on franchising is pretty costly. Costly financially, Costly in terms of poorer services and costly for the workers who invariably seem to pay with reduced pensions and job stability to create an illusion of “efficiency” that hasn’t really materialised.

  • Glenn,

    if nationalisation of a service can produce a more efficient operation then that would generate the most welfare for society as a whole https://www.economist.com/topics/privatisation-and-nationalisation.
    It’s an economic decision not a moral question as Mick puts “it seems quite wrong to me that shareholders should profit from services without which people may die.” We all need food and expect to pay for it – that doesn’t mean we need to nationalise farming. If we cannot get the money we need, we need as a society a safety net (pensions and welfare benefits) to ensure that everyone has sufficient to maintain themselves.
    Shareholders need a return on that capital to attract investment into an enterprise. Utilities like water are a low risk investment and the level of returns required to attract capital are relatively low. This was the reason Gordon Brown levied a windfall tax on the privatised utilities in 1997 and is the same reason why there should be a higher rate of tax on monopoly profits to recover excess profits arising from state granted privileges. Regulation of natural monopolies and recovery of monopoly profits is generally a better alternative than the kind of bloated bureaucracies and dire levels f service that was our post-war experience of nationalised industries.

    Japan runs a privatised railway system quite well. Other countries adopt a state run approach. Both approaches are capable of producing optimal outcomes. The only real difference is shareholders provide the capital in a privatised industry and taxpayers in a nationalised one.

  • Peter Martin,

    “There’s really no difference, in principle, between seizing assets, ie nationalisation, without compensation (as the Trotskyists would like) and imposing draconian wealth equalising taxes on the owners of land and the other ‘privileges’ you’ve mentioned. ie Radio spectrum etc.
    It doesn’t necessarily mean these are bad ideas. But getting either of them accepted by the mainstream political parties.”

    There is all the difference in the world in recognising that legal protection of Land titles, Natural resources and state granted rights and privileges are a proper source of public revenues while imposing taxes on the productive activities of the economy – Land and physical capital carries a deadweight cost that impedes economic growth.

    A rentier society that extracts the lions share of economic surplus produced in the economy is the source of continuing poverty despite the immense technological progress and exponential increase in productivity since the advent of the industrial revolution.

    This is not taking money off people just because you think have too much. It is organising society so people and firms earn a living according to their skills and talents from producing goods and services that are made available in a free market at the cost of production plus the cost of labour 9pre-distribution rather than redistribution). The economic rents that are derived from land, water, oil, gas and other natural resources are a common resource to be shared across society as a whole by collecting these rents for the provision of public services.

    Land has been at the heart of political reform since the days of John Locke and Tom Paine and remains the key to inequality today. Those inequalities have been exacerbated over the past decade with the impact of quantitative easing on rising house prices and rents in a slow growing economy taking an ever greater share of disposable income.

  • Peter Martin 18th Jun '18 - 1:25pm

    @Joe B,

    “A rentier society that extracts the lions share of economic surplus produced in the economy is the source of continuing poverty despite the immense technological progress and exponential increase in productivity since the advent of the industrial revolution.”

    Certainly it’s a factor in poverty so you are right to that extent.

    But what are you going to do about a situation where just a few families own most of the land? This is the situation in some Latin American countries and it’s probably not much better here.

    You have to remove it from them by giving them tax bills they can’t pay unless they sell up or you remove it by Nationalisation and only give them partial compensation. What other options are there? Those kinds of ultra radical policies, which are functionally equivalent, are never going to be accepted by the Lib Dem mainstream.

  • Joseph Bourke 18th Jun '18 - 2:27pm

    The classic example of rent-seeking, according to Robert Shiller, is that of a feudal lord who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee (or rent of the section of the river for a few minutes) to lower the chain. There is nothing productive about the chain or the collector. The lord has made no improvements to the river and is not adding value in any way, directly or indirectly, except for himself. All he is doing is finding a way to make money from something that used to be free.
    In this a recent article by Professor Ted Gwartney https://landresearchtrust.org/wp-content/uploads/2015/12/DebtDeathDeadweight.Ch7_.pdf. he gives an example of Land Value Capture in his home state of California.
    ” Back in 1886, citizens organised themselves after one California rancher who owned one million acres won full rights to the water of the Kern River. The result was the Wright Act, which permitted local irrigation districts to fund the construction of dams and canals and other infrastructure with bonds that were paid off by land rent. The impact was startling. It took just 10 years for the Central Valley to be transformed into over 7,000 independent farms. The Wright Act was amended to mandate the total exemption of improvements from the tax base. Irrigation Districts included and taxed land that was used not only for farming but also for residence and commerce within townships. Steadily the Irrigation Districts evolved to fund reclamation, recreation, and electric power. The formerly semi-arid plains of the San Joaquin Valley became the “bread basket of America”, one of the most productive farming areas on the planet.”

  • Neil Sandison 18th Jun '18 - 2:46pm

    Joe B . One of the big problems we will face in the not so distant future will be resource management as raw materials become more depleted and expensive to extract from harder to reach locations . How does your brand of radical liberalism fit in a society where we may have to ration or control those resources .Have you given much thought to the circular economy more dependent on reuse and recovery of finite resources ?

  • Peter Martin 18th Jun '18 - 4:42pm

    @ JoeB,

    Look, I don’t disagree. I don’t think we have anything quite as bad a chains across rivers but we do have some very wealthy rentiers in the UK. But the Lib Dems are supposed to be a moderate, sensible, middle of the road, political party.

    That means they won’t do anything. They won’t want to rock the boat too much.

  • Benjamin,

    If LVT is introduced in the UK it will most likely take the form of a replacement for business rates and council tax; and potentially stamp duty land tax, capital gains and inheritance tax on the land element of property assets. Landowners would pay business rates on both rented and undeveloped land.
    The UK imposes taxes on the extraction of natural resources like oil and gas via a petroleum revenue tax.
    Taxes on economic rents derived from legal privileges other than Land Titles would most likely be a reform of corporation tax that exempted profits derived from returns on produced capital, but taxed at a higher rate monopoly or exploitation rents.
    There is no need for compensation of Landowners as a consequence of imposing business rates on these types of business in the same way that other businesses pay rates. No one suggests we should compensate Oil and Gas investors when petroleum revenue changes or when fuel duty is increased. One of the arguments for these taxes is it encourages more efficient use of natural resources. The same efficiency argument applies to other natural resources like Land.

    Replacing business rates and council tax with a more proportional levy based on land rental values is unlikely in practice to see land values decline. The rental and land value is determined by demand for the location and that demand remains regardless i.e. the price is set by renters not Landowners. This has been the experience of Denmark and other jurisdictions like the Australian states where quite high levels of LVT have been assessed on second homes.

    In the UK the tax deduction for interest costs on rented residential properties has been restricted and will gradually reduce over five years. This effective tax increase on buy to let landlords has had no noticeable effect on house prices to-date.

  • Peter Martin 19th Jun '18 - 11:06am

    But If Liberal Democrats are not rocking the boat and standing up for the rights of the common man, then what are we for?

    The Lib Dems are a reformist party. So is the Labour Party. That’s why they have always compensated the previous owners of the means of production whenever they have nationalised anything. There’s arguments both for and against doing that, but it isn’t doing anything to redistribute wealth in the ultra radical way you’d like to. That’s more about revolution than reform.

    This link shows you what, and who, you are up against.


  • Joe
    I would argue that the “efficiency” view is based on moral choices that favour the views of the wealthy/powerful and that the weakness of institutional liberalism is that it can see the electorate as a mechanism for achieving technocratic solutions, which is a big mistake. Hence, there is a built in fear of popular democracy which results in alienation from the reality that elections are actually about majoritarian consent. The point being that the electorate can remove governments and institutions.

  • The bank levy – a tax on banks’ equity and liabilities – was introduced in January 2011 and was set at 0.18% in 2016. The bank levy was forecast to raise £2.9 billion in 2016–17, but the rate (and revenues) is set to fall gradually each year to January 2021, when it will reach 0.10%. Partly offsetting these reductions, an 8% corporation tax surcharge has been applied to banks’ profits from January 2016. This supplementary charge is applied to the same base as corporation tax, although the first £25 million of profits is exempt.
    The North Sea tax regime is comprised of corporation tax and a supplementary charge. The rate of corporation tax on these activities is 30% (or 19% if profits are below £300,000). The supplementary charge is levied on the same base as corporation tax, except that certain financing expenditure is disallowed. The charge was introduced in the 2002 Budget at 10% and after several changes has been returned to 10% for 2016–17. Oil and gas companies were until December 2015 also subject to petroleum revenue tax (PRT). This was permanently set to 0% in Budget 2016, but has not been abolished.
    Insofar as we already have higher/supplementary rates of tax for larger banks and oil companies, it should not be too much of a stretch to consider higher/supplementary charges for larger companies able to exploit a market dominant position in the UK.

  • Peter Martin 19th Jun '18 - 4:24pm

    @ JoeB,

    “But If Liberal Democrats are not rocking the boat and standing up for the rights of the common man, then what are we for?”

    I’ve noticed Tim Farron’s post about treating refugees more fairly. It’s all very commendable and, to answer your question, that’s what the Lib Dems are for. The LIb Dems are the progressive wing of the establishment. The conscience of the ruling class. Centrist politics may indulge in a little gentle rocking, just occasionally, but it’s never going to be about a fundamental redistribution of wealth in society.

    The same probably goes for most of the Labour Party.

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