Back to my favourite Conservative Party policy document, the one from John Redwood and co. Having covered its impressive ability to squeeze four different, contradictory proposals on data protection into the same document, not to mention its use of figures that are a decade out of date, it’s on to taxation this time.
Chapter 10, section 6, pages 82-3 is the list of proposals. And what do we find?
- Tax cuts on company profits.
- End of inheritance tax.
- Reduction in capital gains tax.
- Reduction or abolition of stamp duty on shares.
- Reduction in the number of people paying the top rate of income tax.
And that’s it.
Now, some of those individual measures might sound quite attractive. But can you spot what they’ve all got in common? Yup, they are all tax cuts from which only a relatively small proportion of the population would directly benefit. This isn’t a balanced package from which everyone – or just those most in need of help – would benefit.
On income tax, for example, the specific recommendation is to cut the number of people who pay the highest rate of tax, and that’s it. Tough luck if you are one of those “hard working families” so beloved of twenty-first century politics which pays the standard rate – no income tax cut recommendations for you. And that says a lot about the real Conservative instincts when it comes to policy.
Contrast that with the Liberal Democrat priorities for tax – a mix of some of these proposals, but with in addition tax cuts across the board (4p off the basic rate of income tax), a simpler system, and extra help for those most in need.
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22 Comments
Mark – whilst I agree that Redwood’s tax-cut list (as with most Tory policies) is all about the protection of privilege, I hardly think our planned 4p basic rate cut is anything to crow about. It will, after all, be virtually wiped out by our ongoing folly of a 3.5p Local Income Tax hike, amounting to a ha’penny cut overall – at best.
Like many others in the Party, I am grateful that we are at least no longer proposing to raise taxes on productive work. However, I think we have a bit more to do on the wealth equality front before we throw many more stones at opposition fiscal policies.
We still have nothing to correct Brown’s doubling of income tax on low earners for example.
The pity is that “Fairer, Simpler, Greener” articulated the sustainable solution to our “long-term goal” of lifting all on the NMW out of income tax, to provide a means of securing further cuts in taxes on earned income and value added, and to simultaneously address the scourge of generational wealth inequality. Tragically (for our electoral prospects and for posterity), the mark 2 Tax Commission has singularly failed to deliver.
Time for Tax Commission 3!
Mark,you must be one of the few individuals in the working population that actually likes the current massive tax and waste policy of the current government.
You really believe that there is no room to cut the massive levels of current waste and give people some of their own money back?
Tim (1), the whole point of what Mark is saying is that when taxes are cut, or their burden shifted around, the question is: who should be first in the queue to benefit?
What Mr Spock (sorry, John Redwood) decided was the Tories shouldn’t, say, raise the non-taxable allowance that every working person enjoys or cut the basic rate, which would help working families. No, apparently the priority is the abolition of stamp duty on shares. I mean, I don’t even know what that is!!!
Umm, where did I actually say any of that Tim?
Andrew – you’re not comparing like with like when you say
“It will, after all, be virtually wiped out by our ongoing folly of a 3.5p Local Income Tax hike, amounting to a ha’penny cut overall – at best”
You’re rather conveniently forgetting that this also includes the *abolition* of council tax.
So less to pay in income tax *and* no council tax to pay. And benefiting all rather than just the Tories’ elite few.
I rather like the sound of that 🙂
Dominic – the test we need to apply to our tax policy is this: Does it shift the burden from productive work to pollution and waste; from earned income to unearned wealth; from value added to value removed?
The combined effect of axing Council Tax and replacing it with LIT is to move the fiscal burden in completely the wrong direction, causing house prices to rise and increasing the pressure on young workers particularly.
Note that this is NOT an argument for retaining Council Tax, which is unfair and needs to go.
However, it is an argument for a progressive property tax – with safeguards for the old and income poor.
Evidence from Newbury suggests a “fair property tax” would be twice as popular as LIT – and much more economically sound as well!
The Party nationally has never conducted any research into the relative popularity of these alternatives. Amazing!
Axing council tax will only raise house prices if supply is inelastic. The party has sensible plans to liberalise housing supply, in that context axing council tax will have no effect on house prices.
Although theoretically income taxes have a disincentive effect, it is quite hard to find evidence for these at British levels. The incentive case for moving taxes away from income tax (which is cheap to collect, yields reliable revenue levels and is broadly perceived as fair) is weak. There is, of course, a strong environmental case for taxing CO2 etc – but cutting other taxes with the money raised is a bonus, not a rationale.
Sorry – that should have said NOT Tim 1 above – When I type into the LDV box not all the characters appear – does anyone else have this problem? I don’t have it with any other website
Interestingly, after Bush’s tax cuts for the rich, the rich are now paying more tax.
Really we should be looking to cut tax across the board. All of us are over taxed and huge taxes on the rich simply don’t work.
Dear Doctor Tim,
“Axing council tax will only raise house prices if supply is inelastic. The party has sensible plans to liberalise housing supply, in that context axing council tax will have no effect on house prices.”
Of course, supply is crucial – but we’d have to be going some in terms of Community Land Auctions and a subsequent house building programme to negate the infaltionary effect of scrapping tax on domestic property. In the real world (under a Lib Dem govt!) that just ain’t gonna happen fast enough, and there WOULD be a once-off increase in house prices – as you have previously acknowleged on this site!
“Although theoretically income taxes have a disincentive effect, it is quite hard to find evidence for these at British levels. The incentive case for moving taxes away from income tax (which is cheap to collect, yields reliable revenue levels and is broadly perceived as fair) is weak.”
Perhaps the vastly documented “benefits trap”, the burgeoning black economy and the ongoing scourge of poverty in Britain today is not yet sufficient evidence of the disincentive nature of income tax? Sure, Income Tax is (arguably) cheap for government to collect – the administration of PAYE is a direct cost to business after all!
And there lies the rub; despite its superficial “fairness”, the redistributive claims of income tax are a total con. It is a major cost to enterprise, passed on to the consumer, with ultimate and proportionately heaviest incidence on the poor. And the richest avoid it altogether! That’s equates to a highly regressive tax in my book.
“There is, of course, a strong environmental case for taxing CO2 etc – but cutting other taxes with the money raised is a bonus, not a rationale.”
I couldn’t disagree more. Environmental AND economic sustainability demands that we switch taxation from ‘what we make’ to ‘what we take’. You seem to be saying that shifting tax from value-added to value-removed is somehow irrational and a nice-to-have ‘extra’. I’m not sure that Britain’s debt-burdened future generations of hard-working young families, paying for the profligate longevity and conspicuous consumption of their asset-rich parents, would entirely share your view.
“Dominic – the test we need to apply to our tax policy is this: Does it shift the burden from productive work to pollution and waste; from earned income to unearned wealth; from value added to value removed?”
Maybe those are ALTER’s tests; mine would be whether it is:
– Simpler
– Fairer
– Greener
The balanced package set before Conference ticks all those boxes including, notably, the first.
Say what you like about LVT – and I know there are many for whom it is the solution to cure all ills – but it doesn’t remotely qualify as simple and readily understandable by the punters who have to buy into the system and pay it.
I suspect your & ALTER’s efforts would be better spent working really hard to find an effective way of simplifying your proposals and encapsulating them in something one might dream of putting into Focus.
Judging by the documents I’ve seen to-date, that’s still a long way off. Produce something that would pass muster at a basic Focus-writing course and you might be onto something.
Will you rise to the challenge?
Dominic – LVT ticks all those boxes too, and was acknowleged as doing so in the ‘Fairer, Simpler, Greener’ paper that Conference overwhelmingly endorsed last year.
Sir Ming even incorporated ALTER’s slogan “Tax wealth, not work” into his keynote speech, demonstrating LVT’s simplicity for the non-economically minded foreign affairs specialist anyway!
The frustration I share with many other resource revenue advocates (for LVT is NOT a panacea) is that the second Tax Commission was tasked with developing “further policies for land taxation” and has blatently ducked the issue.
So we are stuck with a contradiction: our Party’s declared fiscal direction, whether you like it or not, is to move tax from wealth creation to wealth appropriation (plus pollution and waste) – yet we persist with policies which take us the opposite way, because of misguided thinking at best, willful ignorance at worst, and an apparent desire to pander to asset-rich pensioners who vote, at the expense of disempowered, stakeless young people who don’t.
My “dream Focus” would have us raising income tax thresholds in one parliament so that all those on the National Minimum Wage were taken out of tax, paid for by a charge on unearned (i.e. landed) property wealth over say £150k. Taking from the rich to give to the poor is a simple enough message isn’t it?
Unfortunately, too many Lib Dems are wedded to the idea that income tax can deliver such an outcome when, after 200 years of failure to eradicate poverty, it patently can’t.
The question for Andrew is: What rate of tax would be required on property over £150k to abolish income tax for anyone on the national minimum wage?
The back of my envelope looks like this:
NMW is about £11,200 a year (40 hour week, paid holidays) – so we have to raise tax and NI thresholds by about £6k.
http://www.hm-treasury.gov.uk./media/C/F/pbr06_taxreadyreckoner.pdf: Cost of raising the tax and NI allowances by £100 are £650m + £270m = £920m, or £55bn to raise £6k. That is too high, as some people earn £7k, and therefore it doesn’t cost anything to raise their tax allowance from £10 to £11k, so knock off £10bn, and say £45bn.
Council tax raises £23bn (http://www.ifs.org.uk/bns/bn74.pdf), so Andrew’s plan needs to raise about £68bn in total (assuming it replaces council tax as well as funding a big rise in the allowance).
Say around a third of houses would be exempt (worth less than £150k), so the remaining 2/3rds of houses would have to pay a charge equal on average to 4.5x their council tax (3 divided between two thirds). I think my council tax is £2.4k. Andrew thinks it should be £10.8k.
Surbiton Tories will be rushing to nominate Andrew for a knighthood with proposals like these!
I wasn’t on the tax commission, so I don’t know whether Andrew supplied more detailed figures to them. Perhaps mine are wrong. If so, Andrew, what do your figures look like?
Will you rise to this challenge?
Tim is right. I asked for a “Focus” whereas what Andrew is proposing looks suspiciously like it could be on a Labour “Rose” or a Tory “Common Sense” (or whatever they call them this week).
And as for LVT being “simpler” … 🙄
Come on guys – it’s Party policy that we should lift thresholds to exempt NMW earners from income tax “in the longer term”. It would be morally unjustifiable for us to do anything else – as last year’s tax paper stated.
I simply cannot see how we are ever going to deliver this worthy and vital goal unless we are prepared to capture and recycle the unearned wealth that flows daily from the have-nots to the haves.
Tim, your £68bn is a fraction of the increase in property wealth the UK has seen over the last 12 months. Surely it is right to tap into that revenue stream instead of bearing down on the value added by productive work?
Dominic, LVT can be as simple as we want to make it. It’s getting this Party to rediscover it that’s difficult!
Andrew: I have proposed a system that I estimate would get about £25bn a year from land (CLAs). What is your system to get £68bn? That is what Dominic and I – and the party at large – want to know.
How about £25bn from CLAs (which you know I support), £35bn from LVT replacing Council Tax (to include all second homes plus currently untaxed empty and development permitted sites) and £8bn from airport slot auctions and other assorted resource rents?
The socio-economic benefit to the productive economy by raising tax thresholds and reducing the cost of labour should not be under-estimated. Neither should the eco-benefits of an LVT tax base, which cannot be eroded or avoided – especially by those most able to pay.
I love CLAs Tim, but they are a form of once-off profit-share, not a tax or even a user charge, and while the proceeds can be invested and interest earned, they cannot replace deadweight imposts on labour – which is the sustainable and necessary course our Party has (allegedly) set.
I don’t see why LVT can’t be part of that Lib Dem tax shifting equation – introduced in a phased and measured way as part of our green tax agenda. Last autumn’s Federal Conference clearly voted for “further development” of land taxation – not just a timetable for SVR. And if it’s good enough for commercial land – why not residential?
It’s just a ground rent to the state. Simple Dominic.
Andrew: The whole point of CLAs is that they go to the local council. They can’t be used to cut national taxes.
From memory only 3% of the housing stock is empty, and 1% are second homes. So if all were taxed at full whack you would only raise £1bn or so. I think auctioning landing slots is already policy, which means we will have allocated the money to something else
Your target was £68bn. If you give everyone a £150k property allowance you knock the CT base by about a third, leaving about £16bn from those who remain. You have also raised about £1bn from taxing empty homes. £51bn to go. Tax policies are credible when they add up. They are not credible until then. No wonder the tax commission didn’t include LVT in their proposals!
I rather thought local and national taxes were interchangeable these days. What is LIT if not a switch from national to local taxation?
OK then, if your £25bn CLA revenue is ringfenced for local councils, we clearly have no need for LIT – good news!
That means a national “progressive property tax” (LVT), which WAS included in early drafts of the first Tax Commission paper but then ditched (vested interests?), could be introduced to replace £35bn in income tax. Central government would clearly cut its grant to local authorities given they were doing so well from CLAs, so saving a further £2bn for income tax reductions. Regrettably, slot auctions are NOT Party policy (apart from “new” slots at Heathrow/Gatwick, of which there are likely to be precisely nil), so the potential for £8bn from these and other resource rents remains. That totals the £45bn required (your figures) to remove all on NMW from income tax – within one parliament.
I would never claim LVT as the whole solution, but it sure as hell is credible enough to be part of it.
The so-called PPT was ditched because it was political suicide! Frankly just as well sense prevailed.
Just saying something is simple doesn’t make it so. Still waiting for that Focus …
The other slight puzzle with PPT is why it gets used in conversations about LVT. The two are quite different
The whole point about land tax is it an assessment of economic rent for the monopoly benefit of owning certain types of land. It is based on zones of value with the zone price set according to both local need and value, not individual house prices, or something as crude as attempting to charge 1% rent on value. In that respect LVT is quite simple. Move into this zone and your charge will be ‘x’, if your land values go up faster than other zones that charge will increase, more slowly and it will relatively decrease. Zones are fairly simple and cheap to assess and value, individual properties are not.
PPT though is just nuts. House prices are a measure of supply and demand at a moment in time that depend amongst other things how much you care about your home and what improvements you make to it. The notion of government tax inspectors kicking in your front-door to inspect the quality of your kitchen tiles is both frightening and a crazy incentive for slums.
The next element, proportionality (i.e. starting at 1% of the house price), unrelated to local tax needs would broadly mean taxing Londoners massively to pay for council services in Liverpool that they can well afford under the current regime, it would be insanely unfair and unnecessary.
The point of local taxation is that it pays for local service according to need and capability. There should be a redistributive element to offset pockets of economic deprivation but not one based on house-price differentials. That would be far too extreme and create all sorts of market distortions (e.g. replacing property with shares and bonds). The third element, having broadly put the weight of taxation on London and the South East, is further progressive bands… so even higher taxes for particularly successful or desirable parts of the capital… fairness and proportionality has at this point left the building (or should that say buildings).
So broadly I’m with the criticisms of LIT as a sole lever for fair local taxation, but not with the PPT solution. What I’d personally like to see is real tax devolution. Control of a portion of income tax, VAT, LVT when we have it, and corporation tax should simply be devolved from the Treasury to Councils to adjust as they and their voters see fit. Real devolution includes decentralising tax-raising (and lowering) powers, not just shuffling spending decisions.
Well said Andy. Real devolution means allowing local councils and so local people the right to choose whether to finance local services with LIT, council tax, a different property tax (including LVT in Oxfordshire), sales tax, bed tax, plastic bag tax, even a window tax if anyone is daft enough to want one of those.