Should we take a risk and be honest about taxation?

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Liberal Democrats, we have a problem. As Max Wilkinson has commented in a recent posting, soft Conservatives are turning to us partly because the government has broken its promises not to raise taxes. But we are committed to decent public services, staffed by people who are decently paid; and after 20 years of cuts in services and real reductions in public service pay, quality can only be regained by substantial and sustained increases in spending. Furthermore, public service workers – people who believe that life is not only about money but also about what you put back into society and community – are among our natural supporters.

So what, under the current fiscal and economic crisis, do we say to potential LibDem voters about tax?

Against the onslaught of the Mail and the Telegraph and the bleatings of Tory right-wingers, we have to insist that the UK has no future as a ‘low tax’ economy. Our competitors – apart from the USA – all spend more on research and development than the UK, more on education and skills, more on health. The USA and Germany are both suffering, like us, from deteriorating public infrastructure on roads and rail; France and Japan have invested more wisely in these fields, including water and energy. We have an ageing population, and worryingly now lower life expectancy than some comparable countries; the Tories have been ducking reform of social care and under-investing in health care for the elderly. The country needs long-term public investment across the board, including in promoting a shift towards a more sustainable economy.

It doesn’t help us that Labour is too frightened of the right-wing media to make the case for a sustained increase in the level of taxation in order to support the higher public investment and spending that the UK needs. This leaves any party that advocates a different approach open to vigorous attack and without allies to provide support. We have been here before. In 1997 when we were preparing a manifesto that included the symbolic commitment to raise income tax to pay for education, and exchanging ideas with Labour about potential areas of cooperation if they failed to win an overall majority, I was told by a Labour staffer that we were mad to go public with a pledge to increase taxation, however modest the increase. Tony Blair indeed pledged not to increase the overall level of taxation – when a more confident progressive party should have made the positive case for greater public investment to lift the quality of life and prosperity across the country.

The gap between public and private sector salaries has widened steadily during 12 years of austerity budgets. Salaries for teachers, university staff, nurses and other health workers have shrunk by up to a quarter in real terms, creating the problems in recruitment, staffing and retention that we now face. Right-wing think-tanks feed friendly media with stories about ‘excessive’ public sector salaries, and their over-generous pension arrangements, while remaining silent about rising salaries and bonuses in the finance sector and elsewhere. Not only are teachers, health service workers, care professionals and other public servants key to a decent and civilised society; they are also among our natural supporters. We cannot stand by while Conservatives squeeze their wages further.

There’s a further problem for us in that the target seats we hope to win in the next election are clustered around the prosperous south-east, while the greatest priorities in terms of public spending and investment are in England’s north and south-west. The UK has a far sharper regional imbalance in prosperity than almost every other member of the OECD. That’s partly because the Thatcher economic revolution devastated industrial areas without providing support for transition to a post-industrial model. Boris Johnson’s rhetoric of ‘Levelling Up’ raised expectations in these regions of what government might now do for them – only to be dashed by the trickle of funding so far provided.

The business pages of the Times and the Financial Times are far more honest than the Labour leadership about the link between investment in education and skills, R and D and infrastructure and long-term growth.

How honest do we dare to be in telling our voters that Jeremy Hunt’s mix of cuts and stealth taxes will not be enough, and that more successful and less unequal countries across the Channel have significantly higher levels of taxation and redistribution? In 1997 our commitment did not damage our campaign. But are we willing to take the risk that an admission that the pursuit of lower taxes over the long-term will be disastrous, when to say so might prove unwelcome to the soft conservatives whose support we are pursuing?

* William Wallace is Liberal Democrat spokesman on constitutional issues in the Lords.

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  • Always tell it as it is, William. The electorate aren’t as daft as some people think they are…… especially in the so called red wall seats.

  • Surely it’s time to abolish employee national insurance and integrate that into the income tax system. That won’t be popular – the basic rate of tax will need to move to ca. 30% and it will increase the tax take from wealthier pensioners. Separately, employer national insurance could be repurposed as pension contributions.

  • Perhaps the first priority should be to tell the truth to the public about our leaving the EU. The virtual collapse of the fishing industry since we introduced trade barriers has been a result of our leaving the EU. The major problems for small companies who used to trade with EU and now face delays as small consignments are checked are another result. We need to publicise the fact that the total losses would, if restored, play a major part in removing budget black holes.
    We need a policy that plans for prosperity and growth. We need a policy Thayer plans for free trade with our partners in Europe.

  • I agree – our ’90s campaign for a Penny on Tax for Education was popular: education is instinctively seen as aspirational, even among older voters (who have hopes for their grandchildren, etc.) The current political situation is very similar to the late 90s, with an exhausted and corrupt Tory government, about to expire, and a moderate Labour party hoping to profit. This is a good time to outflank Labour by being just a shade more progressive, and perhaps even – whisper it – bolder on rebuilding links with the EU (not difficult, given Starmer’s recent hardline pro-Brexit approach!). Both these policies appeal to middle class, aspirational voters common in Tory – Lib Dem fights.

  • Paul Barker 15th Nov '22 - 1:05pm

    We can surely argue both for Higher Taxation & a shift from Taxes on Income to Taxes on Wealth – starting at the Top with Billionaires ?
    With the Tories out of the argument for a Decade we can act as Labours Heart & Brain – feeding them new ideas.

    For example why not adjust the guidelines for the Bank of England to include Housing Prices – so Interest Rates would be changed to keep Housing costs Stable ?

  • James Moore 15th Nov '22 - 1:06pm

    Sorry but this is a recipe for electoral oblivion and reflects a lack of understanding about how tough it is for many people and businesses right now.

    In 1997 we weren’t threatened with rapidly rising prices and a serious recession. Today many people can’t afford to pay their usual bills, let alone pay more in tax. We should be looking to reduce the tax burden on the most vulnerable and only consider tax rises on those groups that can clearly afford it. The UK is not bankrupt and a modest amount of additional borrowing in the short tern is better than driving even more people into poverty.

    It also might be better to focus on encouraging the private sector to invest in education and skills so that the country produces people that the economy needs. I am not at all convinced that the state and the public sector knows best when it comes to education – and I say this as someone who has spent most of his life working for public-sector higher education institutions.

    One of the reasons Blair won in 1997 was by reassuring people that taxes would not rise and that a Labour government would work within broadly the same fiscal envelope as the Tories. There is a reason that Starmer is following the same general approach.

  • Peter Davies 15th Nov '22 - 1:49pm

    Here are a few taxes that could be introduced without major pain for our target demographic or the poor.
    Land Value Taxation (replacing council tax and at a level to raise slightly more).
    Inheritance Tax (based on recipients income rather than donor’s wealth)
    Replacing employees’ NI with Income tax
    Treating all capital gains as income
    Removing special treatment of UK dividends.

  • Nigel Jones 15th Nov '22 - 3:15pm

    Peter, you are right to suggest a different way of taxing, in particular taxing ‘unearned’ income. We should include replacement of the business rates to shift the burden from small businesses (many of whom have voted Tory) to big business; I seem to remember this being party policy which showed a couple of years ago that small businesses in my town would pay 29% less. We should shift the amount of tax towards those whose TOTAL situation is most able to pay and away from the less wealthy and poor.

  • Nigel Jones 15th Nov '22 - 3:30pm

    Lord Wallace, this is a very important matter but much of what you say (e.g. about our tax take being less than many other developed countries) is not believed, even though the IFS recently showed this. I have been surprised in last few days, the number of people on a local social media channel saying they don’t mind a recession AND therefore there is no need to complain to government. These are people who do not understand the struggles that others face. The same people complain local tax is too high because (apart from nurses) people in public services are paid too much and there are too many of them.
    In the ten years up to 2016 many people’s views were influenced by drip drip constant bits of information of what was wrong with the EU. We and Labour need to feed people constant bits of information about the real situation regarding tax and spend and its consequences. Only then can we expect them to appreciate the points you make. Aslo (as in my above comment) It will not work with most people to talk vaguely of tax rises without indicating how much each person should pay according to their circumstances.

  • Nigel Jones 15th Nov '22 - 3:47pm

    Public services need change as well as resources. The interim report of the Times Commission on Education reported in January loads of comments calling for radical change; one from a survey conducted by the Commercial Education Trust said that improving our education system could boost the economy by £125bn a year. John Major last year said spending on Education should be categorised as capital investment.

  • We should have been opposing council tax freezes and caps from day one of their introduction. Localism! Instead, as usual, we just acquiesced in populism.

  • Graham Jeffs 15th Nov '22 - 4:26pm

    The ‘something for nothing’ mentality is a curse for this country. At a very local level our surrounding roads are appalling, little ever gets repaired, let alone properly. That is but a miniscule example.

    Yes, we absolutely have to spell out that failing to invest in our own country is a killer.

    And we must also stop pussy-footing around concerning the impact of Brexit. Thanks to the latter, we have lost our identity and our momentum. Merely being anti-Conservative is not enough, we need a cohesive strategy to give ourselves wider credibility. Not everyone is going to like it – but that’s true whatever we do. For heavens sake, leadership, get a grip!

  • Barry Lofty 15th Nov '22 - 5:24pm

    Our country as we would like and expect it to be is falling apart before our eyes , taxes fairly delivered would address many of the problems but not all, realising the extent of our losses in many of the political decisions made over recent years and reevaluating them would go some to reversing the decline that continues today.

  • William Townsend 15th Nov '22 - 5:55pm

    Personally i am comfortable with means testing to ensure we target limited resources. We are not in the post war period where universal benefits like child payments made sense. And today we really should not be giving billions to already wealthy people. I am better off with the £66 i get to help with energy that can’t be right. Wealthy pensioners getting free TV licenses and winter fuel payments. The whole tax system need a blank piece of white paper and we need to write a policy for today and ditch a cobbled together nightmare that clever people can exploit and doesn’t share the burden as it should.

  • William Townsend says “Wealthy pensioners getting free TV licenses” – that is not the case. For more than two years free tv licences have only been given to any household with someone aged over 75 who is receiving Pension Credit.

  • William Townsend 15th Nov '22 - 7:52pm

    I stand corrected on the TV license

  • James Fowler 15th Nov '22 - 8:14pm

    This is a great article because it flags up the enduring Lib Dem dilemma beautifully. Most activists’ views and the general tenor of pronouncements are very social democratic, often more so than Labour. Yet the voter base, such as it is, plus likely swing voters, are certainly further to the right as I suspect the membership is too. As I’ve often said, campaigning and policy coherence would be a lot simpler if we were a fully committed Liberal party like the VVD, FDP or the ACT. Instead we’re in this odd space where we’re social democrats, but not Labour. Huh? To the public it’s incomprehensible too, but luckily we don’t get called on it… except when we enter government.

  • Peter Davies 15th Nov '22 - 10:15pm

    James Fowler. When you talk about ‘likely swing voters’ you are talking about the people who you hope would swing to us if we put forward more right wing policies. Presumably, the people who would swing to us if we put forward more left wing policies are to our left. The problem lies in the concepts of left and right. When it comes to views on economics, the majority of the public are quite social democratic. It’s on issues like immigration that they are to the right of us.

  • James Fowler 16th Nov '22 - 9:42am

    Hi Peter. I think you’re right. The big state with big spends, never quite big enough taxes and therefore big debts is the majority preferred position. Likewise I agree with what you say about the majority public opinion which is hostile to immigration. But for different reasons, both Labour and Conservatives are far more credible than us on those issues. Labour owns big spending, the Conservatives own strong borders.

    The issue is the the liberal position on both those topics is the opposite. Watchful of the state, but open to citizens of the world. People on this site grumble that we are a. not distinctive and b. the national polls are nowhere near as good as they should be. It would certainly be distinctive to take a classical liberal position on both tax and immigration. It would also be intellectually and morally coherent, and shake us free of both major parties. Yet pragmatically I can see the problems. We rely heavily on being ‘none of the above’. Adopting any clear position means casting some of them off, which of course we can ill-afford to lose. It may be that fuzzy incoherence is the price of survival. But we need to accept that we will never decisively win in those conditions, and that entry to government on those terms will likely be catastrophic as the motley coalition of (frequently mutually exclusive) oppositionalist voters that put us there will angrily desert at the first sign of our being involved in actual policy trade-offs.

  • I would be pleased to see us change the narrative on taxes. There is an oft repeated view of the tax burden. We ought to see taxation for what it is, the subscription we pay for the privilege of living in a civilised society.

  • When we talk about immigration we need to accept that without immigration our birthdate would be below replacement – hence a decreasing population and an increase in the proportion of older people.
    We need to look at the implications of this.
    We need all the educated people we can. We know that there is very high correlation between educational outcomes and family poverty. Hence our first aim should be to remove family poverty.
    I suggest also we look at the things that would be needed to keep people healthy longer. The NHS website includes good diet, exercise, low stress – but people need the resources to achieve these.
    And a properly funded health service could help to allow the many who are at home waiting for treatment to lead productive happy lives – and of course help to balance our books.

  • David Garlick 16th Nov '22 - 11:22am

    Dishonesty cannot and must not be an option.

    Taxation where the purpose is to pay for services that voters would welcome has to be honestly spelt out.

    The Focus on improved health & welbeing, education, climate change etc. all in the context of the cost of living crisis. Easy? It is not.

    Oil Companiies either pay more tax or get serious and urgently proactive on renewables. Electricity network operators either pay more tax or get serious and urgently proactive on making the network fit for future purpose. Flyers pay tax on every flight with the levels of tax increasing for each additional Flight.

    I could go on and on but I will stop here.

  • @JamesMoor so you want us to be dishonest with electorate about tax, because it will cost votes to tell the truth? There is far too much obfuscation and downright lies in politics and we should not be joining it. Of course we have to have progressive taxation that falls on the backs of those who can best afford it. We must stop talking up tax cuts and/or the tax burden and say loud and long that if you want excellent public services then you have to pay for them and that means higher taxes. Too many people don’t (or don’t want) to understand this basic economic fact and think the government should somehow magically find the money. Political Parties, including the LibDems have colluded in obfuscating the truth about tax and spend and it’s high time that we at least should stop doing so.

  • Governments, in power or prospective, have to be able to demonstrate efficient delivery of public services. That requires putting in place and maintaining an efficient system of taxation.
    The basis of such a system for the UK was developed in the 2010 Mirrlees report. The preface to the report notes: “In addition to administrative practicality and the difficulty of turning economic intentions into robust legislative language, proposals for tax reform are of course constrained by politics—not least the unfortunate observation that those who lose from tax reforms tend be vengeful while those who gain from them tend to be ungrateful. But there is no point in a Review of this sort confining itself only to recommendations that we could confidently expect to receive immediate and enthusiastic support across the political spectrum—it would be a very short report if it did.
    In the final report we have tried to take explicit account of the political economy of tax reform in setting out a possible path to a better system, but there will always be a tension to some extent between what is economically desirable and what is politically practical.
    One of the most important and well-known lessons from economics is that there is no such thing as a free lunch.”

  • Keith Orrell 16th Nov '22 - 5:08pm

    As ever important question from William. Re William’s reference to 12 years of austerity it would be good if our national commentators would avoid the Labour propaganda that austerity started in 2010. Gordon Brown started it in 2008 and if Labour had won the 2010 election their plans would have continued austerity – in 2010 each party contended that they had the best austerity plans.
    Honesty with taxation is good but with the caveat that tax increases will be higher because of Tory failures.

  • Talking about tax……….., what sort of society is it that allows a motor racing champion to save £ 3.7 million pounds on VAT by buying a private jet in the Isle of Man, and in 2022 fails to deal with mould which has effectively killed a little two year old boy in Rochdale ?

    “Lewis Hamilton’s tax dodging revealed Papers › UK ›
    6 Nov 2017 — Lewis Hamilton received a £3.7m VAT refund on his £16m private jet using an Isle of Man scheme, leaked documents reveal…..”

    As my Granddad used to say, “there’s summat wrong somewhere”.

  • Gordon Lishman 17th Nov '22 - 12:55pm

    William is, of course entirely right.

    One further point: the problems with abolishing NI are (1) that it gives the employers their money back as a direct loss to income; and (2) it loses the whole Beveridge principle of social insurance by the whole population against the risks everybody faces and moves us back to financing services out of general taxation. As Beveridge said, “services for poor people are poor services”, which is a strong argument for sharing risk across society.

  • The Mirrlees review recommended radical tax reforms “Stamp duty on property transactions is “inefficient and damaging” and should be abolished, while VAT should be levied on financial services business and income tax merged with national insurance”
    Stamp Duty can be replaced with a 0.5% proportional council tax on property values (with a homeownersallowance) and business rates with the LibDem Commercial Landowners levy.
    Beveridge assumed that means tested benefits would fall away over time and was never able to satisfactorily address the problem of rents that has seen the ballooning of housing benefit decade after decade.
    The social activist Juliet Rhys-Williams’ campaigned for the integration of the tax and benefit systems after the war and the provision of a universal basic income. It was rejected by Beveridge and Keynes as too ambitious in the post-war austerity years.
    This is the policy that LibDems need to drive forward now. A guaranteed minimum income of £100 per week (rising with inflation) for taxpayers and benefit claimants based on integration of the tax and benefit system; a land value tax to address the problem of rents; and the radical proposals of the Mirrlees review for reform of the UK system of taxation.

  • James Fowler,

    Your view of liberalism and mine are very different. British Liberalism has since the twentieth century had a huge slice of social liberalism within it, much more than European Liberalism. The last thing we should be is a Liberal Party like the VVD, FDP or the Liberal Party of Australia. In Britain, Liberalism is not ‘watchful of the state’ or believes that the state is over powerful. It is built on the Whig tradition of opposing those with the power, be it the monarch or landowners (or trade unions when they were very powerful). Nowadays employers and business and the market have the power and we as Liberals need to consider how we control their power. We need an active state to do this, not one which stands back and doesn’t get involved. We as a party see poverty, lack of education and/or training and conformity as things which enslave people. For us ending poverty must take preference over any idea that low taxes are best for people and liberty. If you are living in poverty you can’t really be free.

  • We should certainly consider a Land Tax of possibly 1% of it’s value annually and possibly combined with a Wealth Tax.

    A Land Tax would have a lot of advantages. Take away gardens and certainly small farms from being affected and it would be very difficult to avoid. The Land cannot move away, it’s ownership should be known by the Land Registry, people will always want it and the tax would just be reflected in correspondingly lower values on it’s sale. If tax could not be raised, then a tag could apply to it with interest and a charge applied until it is eventually sold within a timescale.

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