Campaigning for higher and fairer taxes?

We need to talk about tax. The IMF’s annual report on the UK economy recommends that taxes should be raised, in order to reduce the deficit further without cutting public investment and services. Philip Hammond, it is reported, would like to do so; but he is opposed by the ideological (and Eurosceptic) right of his own party, and by the influential group of free market think tanks who were cheerleaders for the Brexit campaign.

The Taxpayers Alliance and the Institute of Economic Affairs have repeatedly argued that it’s impossible to raise more than 35% of GDP in tax, and that the government should cut public spending to within that ceiling. Tim Worstall of the Adam Smith Institute, in an attack on the ‘experts’ of the IMF in The Times on December 22nd, argued bluntly that ‘taxes don’t have to rise. There’s a lot more redistribution that could be cut.’ He takes Taiwan and Singapore as his models, where taxes amount to 20% or less, ‘and run entirely reasonable places to live.’ He seems to accept that we might wish to spend some public money on state pensions, and maybe a bit more on health, but that cutting out most welfare benefits could take the UK down below a 30% tax take.

Now reflect on how strongly such arguments flow across the right-wing media and the Conservative Party and their funders and cheer-leaders. And how close is the connection between the Brexit project and shrinking the redistributive role of the state. The Taxpayers Alliance supplied the brains behind the Leave campaign, in Matthew Elliott, now with the Legatum Institute which has privileged access to David Davis. Brexit Central is staffed partly with people from Taxpayers Alliance. Most of these groups don’t declare their sources of funding, although offshore donors have been advised to give to think tanks rather than direct to the Conservatives because they can keep their names out of the press. It’s likely that some are financially supported by right-wing US donors, too.

Britain has one of the lowest tax rates of any developed democracy, after the USA and Canada. It is also one of the most unequal, after the USA. Other democratic states tax wealth and income more progressively, and provide higher-quality public services from that revenue. Germany, on Eurostat figures, raised 40% of GDP in tax in 2016, against the UK’s 35%, without ruining its economy or losing its business elite. The free market right would like to follow the same agenda as the US Republicans under Trump: hold down taxes on the rich, and squeeze public services for the poor – from schools to hospitals to social care. I heard a Conservative MP in a private meeting the other week suggest that we could solve the shortfall in the defence budget by using some of the money being shovelled towards the NHS – though I doubt if he would dare say that to his elderly constituents.

Martin Wolf in the Financial Times – the most consistently liberal newspaper in Britain today – has recently warned that too wide a gap between rich and poor becomes a danger to democracy. That, of course, is why the free market right are so attracted to authoritarian societies like Singapore – or Pinochet’s Chile, two generations ago – or nationalist leaders like Putin and Trump. One of the fundamental distortions of the Brexit populists is that the left behind to whom they have pitched their anti-liberal nationalism will suffer most directly from the spending cuts and price rises that will follow from leaving the EU.

The IMF urges the UK to narrow the tax gap between employed and self-employed, to shift property taxation from sales to values, and to reduce tax allowances on corporate debt. Above all, it calls for higher taxes, to invest in public services while shrinking long-term debt, and to cope with the increasing proportion of elderly. Liberals and social democrats should grasp the argument that an open, democratic society rests on a sense of common citizenship, shared community and social justice, and that redistributive taxation is an essential element in building and maintaining that sense.

* Lord Wallace of Saltaire is a Liberal Democrat member of the House of Lords.

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45 Comments

  • Tim Worstall 28th Dec '17 - 5:15pm

    “Other democratic states tax wealth and income more progressively, and provide higher-quality public services from that revenue.”

    Ah, so you didn’t read – or perhaps understand – what I wrote in The Times then.

    “Above all, it calls for higher taxes, to invest in public services”

    No, you didn’t, did you?

    What I said was that those low tax states have public services as we do. Even we don’t spend more than 20% of GDP on public services – the bureaucracy itself, defence, NHS and education come to less than that.

    The difference is in how much taxing of the richer we do to give money to the poorer – the amount of redistribution we do. That is, the IMF – and you – are wrong to claim that the argument is that we must raise or increase taxes to have more public services. Instead, it is that we must raise taxes to pay for either the redistribution we already do or to enable us to do more.

    An interesting argument no doubt, obviously one you and I are on different sides of. But the “MOAR TAX” argument is about redistribution, not public services. Given that it is wouldn’t it be rather more intellectually honest of us to discuss it in those terms?

  • Peter Martin 28th Dec '17 - 5:24pm

    The IMF’s annual report on the UK economy recommends that taxes should be raised, in order to reduce the deficit further without cutting public investment and services. ???

    We’ve been here before when the coalition raised VAT to 20% with the same intent. It didn’t work then so why should it work now? Increased rates of taxation simply depress the economy which results in higher levels of unemployment and lower levels of taxation revenue. There is an increased call for non-discretionary Govt spending. The ned result is just as likely to be an increased deficit.

    We need to consider that pounds are created by Government spending them into the economy. Where else can they come from? They circulate until they are collected back by the Government in taxation. The Govt can’t expect to get back more than they have created in the first instance so deficits are quite normal and to be expected. The Government’s deficit, to the penny, corresponds to everyone else’s savings. Savings are a good thing, right? If so deficits have to be a good thing too. Or if deficits are a bad thing, savings too are bad.

    I’m sure the IMF economists know all this. So why do they lie to us? Why can’t they just tell it like it is?

  • I would concur with Lord Wallace’s conclusion that “Liberals and social democrats should grasp the argument that an open, democratic society rests on a sense of common citizenship, shared community and social justice, and that redistributive taxation is an essential element in building and maintaining that sense.”

    Singapore has one of the highest living standards in the world. Singapore’s public transport system is comparable to the best in the world. First-class medical services, top-of-the-line educational facilities, wide choice of excellent housing, and a global connectedness through its high tech telecommunications network. Singapore is a safe environment, for both foreigners and locals. Singapore leads ahead of every country, except Japan, in terms of international perception of high level of personal security.

    Taiwan has comparable living standards to Singapore as does Hong Kong with similiar features of high quality education, public transport systems, low unemployment and low levels of taxation.

    How then do they achieve the seemingly impossible? All three share a common feature in the public financing systems. Government spending is largely financed from the taxation of land. Singapore makes extensive use of non-conventional sources of revenue such as from the lease of land, creating property and usage rights to generate tax-like revenue; and limited social risk pooling in financing national spending on healthcare and pensions. In Hong Kog land is all publically owned. Land Leases furnish much of the territories public financing needs. Government rent in Hong Kong, formerly the crown rent, is levied in addition to Rates. For properties that are located in the New Territories (including New Kowloon), or located in the rest of the territory and whose land grant was recorded after 27 May 1985, government rent is levied at 3% of the rateable rental value. In Taiwan, individual municipalities, counties, and cities have set up Revenue Service Offices responsible for collecting a range of taxes, including: Agricultural Land Tax, Land Value Tax, Land Value Increment Tax & House Tax. Taiwan has a progressive income tax with a starting rate of 5%, intermediate rates of 12%m 20%, 30% and 40% from incomes over £1.1m; and a top rate of 45% on incomes over £2.5m.

    So, redistributive taxation is essential to a fairer society, but it must be built on top of a taxation system that collects economic rents from land and natural resources property.

  • Income inequality is a threat to democracy. If not dealt with then populism will become more of a feature in our politics. An economy that only works for the super rich at the expense of everyone else is unsustainable.

  • Tim Worstall and Peter Martin’s comments – absolutely.
    Wallace exemplifies the worst kind of collectivist tendency that exists in the older Liberal Democrat membership, which is probably why he is now in favour of reintroducing a national service and even some form of identity card as stated at his SLF lecture earlier this year.

  • I’m not sure that tax as a percentage of GDP is really a useful measure in this context. If you look at countries with really low tax takes compared to GDP you find some that have significant oil or mineral wealth but also low populations, e.g. Saudi Arabia, UAE, Qatar etc. For them, raising enough tax is easy.

    However, you also find broken, failed state countries like Afghanistan, Yemen and Libya, where most people are poor and central Government lacks an effective apparatus to collect tax, and where health and other public services are poor to non-existent.

    At the other end of the scale – Norway, Sweden, Denmark and Finland have tax rates >50% of GDP. They are by all accounts excellent places to live, with low levels of inequality and very good public services.

    UK tax rates against GDP are almost exactly the same as Mongolia. That doesn’t mean that standards of living or provision of public services are remotely similar.

  • Daniel Henry 28th Dec '17 - 8:43pm

    @Tim Wostal
    During austerity, public services have taken a huge hit. You seem seem to argue that we could instead reduce “redistribution”, but how do we do that without hitting the safety net.

    And Lord Wallace is absolutely correct to say that the government needs more income to protect public services. Increases in demand for health, social care and pensions means that the government will need to pay far more to sustain the current level of service.

    If we don’t raise more income, the only option is to reduce the level of service.

    @Nick
    I think the point about percentage of GDP was as a marker of what CAN be done. I.e. If Germany is collecting 40% of its GDP and Nordic countries even more, then we CAN if we need to.

    The separate question of whether we need to is more down to whether current levels of funding can sustain the levels of service we desire. At the moment it seems that it doesn’t.

  • Daniel Henry 28th Dec '17 - 8:44pm

    (apologies for misspelling your name Tim – I’m blaming autocorrect!)

  • Tim Worstall makes a valid point about the need to discuss taxation not only in terms of funding public services, but also with regards to the level of redistribution necessary or desired to maintain a acceptable level of equality in society generally.
    However, before the question of redistribution or safety nets can be effectively tackled, it is necessary to deal first with issues of pre-distribution, so that all in society have a reasonably equal opportunity to provide for their own needs and have access to the education and training, health services, law and order, gainful employment and affordable housing required to do so.

  • Peter Martin 28th Dec '17 - 10:03pm

    @ Daniel Henry,

    “If we don’t raise more income, the only option is to reduce the level of service.”

    If we’re talking about a local council then the above statement would be true. The economics of a local council is largely the same as the economics that you and I use in our personal lives. Our income is almost entirely independent of our expenditure. We can reduce our expenditure and perhaps work a bit harder to earn a bit more money if we have a deficit problem. We are used to thinking in these microeconomic terms.

    For a National Govt, in charge of its own currency, that’s not at all the case. If Govt cuts its expenditure it also cuts its own income. So cutting expenditure, and/or raising taxes, isn’t going to have the desired effect. We need to think in macroeconomic ways. We need to imagine ourselves as a Govt which issues the currency. Every unit of currency is an asset/liability pair. If we have financial assets someone has to assume the financial liabilities. That can only be Govt. In other words everything needs to sum to zero. If we want positive numbers in our bank accounts the Govt has to assume the liability of negative numbers.

    There is a time to cut Govt spending and raise taxation. That’s when the economy is running flat out and is possibly overheating. It’s not to try to “balance the budget”. That’s microeconomic thinking in a macroeconomic context.

  • This, of course, is the same Mr Worstall who was UKIP’s national Press Officer, and whose twitter account makes the orange bookers look positively deepest red.

  • Peter Martin 28th Dec '17 - 10:29pm

    @Lord William Wallace

    “Germany, on Eurostat figures, raised 40% of GDP in tax in 2016, against the UK’s 35%, without ruining its economy or losing its business elite.”

    @ Daniel,

    “If Germany is collecting 40% of its GDP and Nordic countries even more, then we CAN if we need to”

    OK so what’s the big difference between Germany and the UK? It’s our relative trade position. Germany is a big net exporter to the extent of 8% of GDP. That means there’s always more euros coming in the the German economy than leave it.

    So what happens to them? They can’t be just left slushing around in the German economy – they’d cause too much inflation. Or at least that’s the German Government’s view! So they tax them away to prevent all that. I wouldn’t agree that’s quite the right way to look at it but it’s not me running the German economy!

    Nevertheless that’s not the case in the UK. We have the opposite ‘problem’. That’s why we have to have lower levels of taxation for the same amount of government spending.

  • Tony Greaves 28th Dec '17 - 10:33pm

    Why is a supposedly Liberal Democrat forum being taken over (indeed trolled) by rightwingers who have more than enough space of their own to promote their elitist rubbish?

  • Lorenzo Cherin 28th Dec '17 - 11:06pm

    If David correct about Tim writing here, then Tony is too !

    Whether Ialways agree with these two, Mssrs Raw and Greaves, and I cannot say I do, I would take them and the author of this sensible article any day at their most left leaning Liberal , red Liberal, red guard Liberal, before right wing laissez faire clap trap!

    And I say that as, David remarks, no strong critic of some of the Orange book, believing it not as neo liberal as thought and a mixed bag of good and not so good and all better than the nonsense spouted by the new triumphalist Brexiteer pro Singapore lot!

    I grew up when the only thing we knew abut Singapore was , Singapore girl, on their airways as,a lovely way to fly ! Lovely way indeed, but I’d like to fly back to the UK, thanks, not to Singapore mark 2!!!

  • David Becket 28th Dec '17 - 11:23pm

    Tony
    Because trolls will appear anywhere where they think they can stir things up, waste other peoples time and hopefully insult. It is one of the problems of Social Media, if you met them in the street you would not give them the time of day.

  • Mr Worstell is a member of the Adam Smith Institute. It’s beliefs are as follows
    . We believe in:
    Low, simple, flat taxes that encourage investment and innovation, and hence economic growth.
    A voucher-based education system that gives parents and schools complete freedom over how and where children are educated.
    A privately-provided, publicly-funded healthcare system where patient outcomes, not NHS wages, are the focus.
    Freedom of trade with the world, and a liberal immigration system that is designed to work for migrants and natives alike.
    A liberalised planning system that lets many more houses be built, so everyone can afford to own their own home.
    A simple welfare system based around a Negative Income Tax or Basic Income that tops up the wages of the poor and guarantees that work always pays.
    Free market money and an end to bailouts of private banks, in all their forms.

    The problem he has is there is no party that are pushing those policies. Now I’m sure there are a few Tories and Orange Bookers who would, but even they now know it’s political doom to follow this advice. The Tories are now wrapping themselves in “tough on immigration ” so, so much for his aim of “a liberal immigration system that is designed to work for migrants and natives alike”. His aim of “Freedom of trade with the world” goes against the reality that the world is dominated by trade blocks. His other aims like ” A liberalised planning system that lets many more houses be built, so everyone can afford to own their own home” means no Green Belt (again political doom), I could go on but I’m afraid Mr Worstell has his dreams and hard reality isn’t likely to dent them.
    Like the Orange Bookers Mr Worstell is searching for a constituency that doesn’t exist. UKIP got many votes but dammed few of them would have been for ” liberal immigration system that is designed to work for migrants and natives alike”; in fact the average UKIP voter would have been shocked they had voted for such a candidate.
    https://www.adamsmith.org/ https://en.wikipedia.org/wiki/Tim_Worstall

  • Peter Martin,

    most economists understand macroeconomics and sectoral balance analysis and do not confuse public debt with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be financed out of foreign exchange earnings.
    Singapore’s Public Debt is over 100% of GDP and consists largely of Singapore Government Securities (SGS) issued to assist the Central Provident Fund (CPF), which administers Singapore’s defined contribution pension fund; special issues of SGS are held by the CPF, and are non-tradable; the government has not borrowed to finance deficit expenditures since the 1980s. They have no external debt.
    Such systems work fine as long as you have a growing and productive population. However, demographic trends towards an ageing population will make all of these fiscal and monetary solutions worthless in the longer term. Tangible goods and services are produced by the working population. The higher the proportion of retirees to workers the lower the purchasing power of any amount of retirement savings denominated in fiat currencies. This is a growing issue for Europe as well as the developed economies of south east asia. Higher birth rates, increased immigration and/or step changes In productivity is the immediate answer. In the UK we are stalled on all counts and no amount of deficit spending/or domestic retirement savings will resolve these demographic issues.

  • Peter Martin 29th Dec '17 - 9:14am

    JoeB,

    You raise a number of points.

    Sure, some economists do understand such things. I’m not sure about ‘most’. Every so often we see a Treasury report, no doubt written by LSE graduates, detailing how “the government finances can be brought back into surplus” over a period of five years or so. What about them? If they understand the principle sectoral balances, how can they write such nonsense? Ditto those economists who wrote the Stability and Growth Pact totally ignoring the levels of private debt in euro using countries but placing far too much restriction of levels of government debt.

    Singapore runs a current account surplus in its trade of getting on for 20% of GDP. Again on the principles of sectoral balances, it’s just about impossible for any government to run a budget deficit under such circumstances. So it’s not really surprising that it hasn’t since the 80s. Not everyone can run a trade surplus. Things have to balance out to zero. Countries like Singapore and Germany aren’t generalised models for everyone else to try to emulate. That’s been tried in the past and the ensuing tensions on a global scale inevitably have led to wars as countries tried to create their own trading empires and destroy or capture the empires of others.

    Yes sure, in any economy, socialist or capitalist, elderly retirees, the sick etc have to be supported from the available economic resources at the time. Governments can’t save up their own IOUs to do this. If the economy is performing poorly there won’t be enough available real things for them to buy with their saved money. This needs to be better understood by everyone, especially policy makers. Not just economists. But it doesn’t change anything as far as fiscal and monetary policy is concerned. It doesn’t make any sense to say we shouldn’t run a deficit just because we have more older people to support.

    Finally, borrowing in a foreign currency has to be treated differently to borrowing in your own currency. The UK government can never run out of pounds sterling, and so can always replay any debt in pounds. But it can run out of US dollars or euros or whatever. The risk in pounds is that the Govt can produce higher than desirable levels of inflation. The risk in dollars is that it could technically default.

  • Tim Worstall 29th Dec '17 - 9:39am

    Amusing:

    “This, of course, is the same Mr Worstall who was UKIP’s national Press Officer, and whose twitter account makes the orange bookers look positively deepest red.”

    Because an anti EU membership Orange Book Liberal Party would be my natural home – even though it is true that I’d be considered a little extreme in my views even there.

    “Why is a supposedly Liberal Democrat forum being taken over (indeed trolled) by rightwingers who have more than enough space of their own to promote their elitist rubbish?”

    I’m not supposed to react to a mis-statement of what I actually said?

  • Tony Greaves 28th Dec ’17 – 10:33pm……………Why is a supposedly Liberal Democrat forum being taken over (indeed trolled) by rightwingers who have more than enough space of their own to promote their elitist rubbish?…………

    I must say it makes a change to see the ‘right’ pilloried on here; it’s usually ‘lefties’, like me. who bear the brunt …

    I’m concerned that, if both left and right are being discouraged, then this site will be even more obsessed with ‘navel gazing’ than it already is…

  • But that party doesn’t exist Tim. Nor is there a voting constituency for Orange Book, people just do not seem to buy into your philosophy or theirs. Odd bits of your philosophy can be found in parties, the Tories seem to like small state, but liberal immigration strangely not, Labour are more liberal on immigration but small state is not for them. I can see after the implosion of UKIP why you need a new party, why not set one up, I doubt it would be politically successful, but you may surprise me.

  • @ Tim Worstall Your innate modesty in not admitting to who you were in your first post does you credit, Mr. Worstall, but it also has an element of the Trojan horse about it.

  • Still waiting for Tony Greaves to acknowledge that Jess Elgot is as much of a clever Yorkshire lass who knows a bit about the world outside the Westminster bubble as he is an expat Yorkshire ladwho’s taken to wearing clogs in Nelson and Colne.

    Come on, Tony,lad, it’s Christmas.

  • Laurence Cox 29th Dec '17 - 10:49am

    @Peter Martin
    You say ” The Government’s deficit, to the penny, corresponds to everyone else’s savings.”

    But this is only true for the world economy as a whole, because the world does not export or import anything. When it comes to individual countries, it becomes more complicated. If people spend more on imported products than the UK exports (as those in the UK have done for decades), then there is a flow of money out of the country. Unless you hold a reserve currency, like the dollar, other countries do not want to hold ever-increasing amounts of it, which either leads to depreciation of your currency and increased inflation, or the sale of assets in your country (what Harold MacMillan called ‘selling the family silver’). For decades the UK’s poor economic performance has been masked by exports of oil and gas from the North Sea. Our continued balance of payments deficits are just as unsustainable as Germany’s surpluses; over the long term all countries must bring their balance of payments back to equilibrium.

  • Peter Martin 29th Dec '17 - 12:07pm

    @ Laurence,

    ‘Everyone else’ doesn’t exclude non UK residents or non UK Central Banks. So if Germany sells us more stuff than they buy from us they inevitably end up with more pounds than they need. They can’t just swap them for euros or dollars. That would depress the pound’s value and we wouldn’t have the spending power that they need us to have. So Germany and the Bundesbank have to be big savers in UK pounds.

    Is this sustainable? You’d have to ask the Germans why they like running their surplus and why they like accumulating our IOUs ie pounds. Maybe someday they’ll decide not to do that any longer and balance their trade or even run a deficit by spending some of their accumulated funds. It’s really their call and not ours.

    Say the Greek Govt introduced a New Drachma. If they issued 100 million in the first year and got 80 million back in tax they would have a deficit of 20 million. That 20 million would be held by ‘everyone else’. That would be their savings in ND. They may or may not live in Greece.

  • Peter Martin 29th Dec '17 - 12:36pm

    Tim Worstall and myself have different political views which I’d say is fair enough. Political views are subjective and there’s necessarily no right or wrong answer to such questions as whether the NHS should exist, whether the Railways should be nationalised or whether the State should be more or less than 40% of GDP.

    But Tim and I agree that the euro is a thoroughly bad idea and is probably doomed to failure taking the entire EU down with it. We should all try to be objective about economics and keep our political views out of it as far as possible. Furthermore, and as Tim mentions in the link below, there are economists of the left , like Stiglitz, Mitchell, Krugman as well as those on the right like Friedman who agree with us too.

    This should be of some concern to Lib Dems who have fallen so in love with the EU. I know its therefore hard to see the faults in the EU but once you do and realise that the only possible solution to the problem is for the EU to become the superstate of a USE then you really have to ask yourself if Liberal Democracy is compatible with all that.

    https://www.forbes.com/sites/timworstall/2016/08/24/the-euro-is-killing-the-european-union-more-it-should/#5a17196913e9

  • Peter Martin,

    Thomas Palley writes here about the USA https://www.theguardian.com/commentisfree/2006/apr/27/tradepiecebythomaspalley “Regarding budget deficits, these pose problems for the future because interest must be paid, which means reduced revenues available for other purposes…paying interest will consume available tax revenues so that maintaining government services could require higher taxes. Moreover, unlike domestic bondholders, interest payments to foreign holders are not taxed, which amplifies their future budget impact.”

    George Monbiot penned a recent piece explaining why neither Keynesian models nor NeoLiberal ideology are adequate responses to the economy of the 21st Century economy https://labourlist.org/2017/10/george-monbiot-keynesianism-is-dead-we-need-a-radical-reboot-of-our-economy/

    He points to two key reasons:
    The first is that global finance discovered how to vitiate Keynesian stimulus. Its assault on capital controls, fixed foreign exchange rates and a balanced global trading system was highly effective, and has now made the UK’s post-war miracle almost impossible to replicate, within our financially porous borders. Without a radical reversal of the current global order, we are stuck with these constraints.
    The second reason is that the economic growth it seeks to sustain runs headlong into the environmental crisis. Sustained economic growth on a planet that is not growing will inevitably crash through environmental limits. This is happening already, in the form of climate breakdown, soil loss (arguably an even more urgent and profound crisis than global warming), mass extinction, pollution and the myriad other assaults upon the world that gives us life.
    Monbiot goes on to argue “We need a different approach. For many years, people have established their political identity by placing themselves on a linear spectrum, with state at one end and market at the other. If you want more state and less market, you identify with the left; if you want more market and less state, you align with the right. But the economy has four sectors: the state, the market, the household and the commons. The perennial neglect of the latter two has left us dependent on growth and contributed to the defining condition of our age: alienation.

  • Peter Martin 29th Dec '17 - 1:25pm

    @Joe B,

    The Palley article considers all deficits including trade, govt budgets and even private sector, which can be the result of too much private sector borrowing. That’s the right way to look at it. You can’t just consider a budget deficit in isolation. Both sides of the debate referenced by Palley make valid points. We have to decide what we want. If we want a lower debt, lower deficit economy we need to balance our trade. If we take a more relaxed view, as Mosler and Galbraith suggest we could, then there’s no need.

    But we can’t have a relaxed view to trade, as we do now, and start fretting about our budget deficit. This makes no sense at all.

    I’m not sure George Monbiot has it right with his “Keynesianism is dead” claim. Bill Mitchell recently made the point that Govts still have all the power they need to regulate their economies. We aren’t beholden to the multinationals in quite the way that many suppose.

    https://www.waterstones.com/book/reclaiming-the-state/william-mitchell/thomas-fazi/9780745337326

    George Monbiot makes a valid point about just how we are over reliant on growth in a finite world. We can still have growth without destroying our environment but the details of just how we do that need quite a lot of thought. Let’s consign ordoliberalism and neoliberalism to the history books first and then turn our attention to that one.

  • William Fowler 29th Dec '17 - 2:04pm

    In the interests of democracy the important thing is honesty and clarity at the next election. Assuming Mrs May has gone and someone like Boris is in control (Mrs May is into State power for the sake of it and can not see her downsizing the govn or spending) then the Torries can say they will cut taxes and unnecessary spending and downsize the govn (of which there is still scads to do), Labour can say massive increase in borrowing, taxation and spending, whilst the Lib Dems can promise small increases in tax and spending. As long as there is honesty then let the electorate decide. It only gets messy when you get dodgy economics that will end up turning us into Zimbabwe.

    On that note, if you compare saving rates and govn debt between Germnay and UK (or Singapore if you must), you can see how nonsensical is the notion that savings are balanced by govn debt, which in the UK’s case needs to run a small surplus for the next twenty years just to get the overall debt down to a reasonable level. All this interference with the market just makes the next crash even deeper and nastier.

  • Thomas Palley was writing in 2006. The basis of his arguments that deficits do matter – budget deficits, trade deficits and excess private sector borrowing – was proved right within a year with the start of the sub-prime finacial crisis.

    Monbiot goes on to propose “an example of how the commons could be revived, with great benefits for prosperity, democracy and community. It is based on a resource that was once held in common almost everywhere, but has since been enclosed and alienated: the land.”

    “At present, the people of most urban boroughs in Britain are exploited, ignored and overridden. We work like ants to pay outrageous rents to people who do not have to work at all, but enrich themselves massively through other people’s labour. The major part of the value of landlords’ property arises from the value of the land, rather than from bricks and mortar. One of the reasons why the land is worth so much is that it is lightly taxed.”

    “This is just one example: there are many ways in which the crucial but neglected fourth sector of the economy, the commons, can be recreated. In doing so, a government of the many would help to counter the age of alienation with a Politics of Belonging. Prosperity is delivered without the need for perpetual growth.”

    “It is the commons that anchors community. The difference between this approach and David Cameron’s cynical Big Society is that it is not just responsibility that has been devolved, but power, resources and the wealth arising from them. But crucially, it ignites values – community and belonging – that are shared by people across the political spectrum, and across the Brexit divide.”

    “Through regaining their critical resources, people can genuinely take back control. Less fear, precarity and insecurity allows more generous, inclusive communities to form. Cooperation and mutual aid become the norm. As the work of social psychologists attests, when we perceive that there is such a thing as society – that we have a role, a place and a voice – our dominant values shift away from individualism, selfishness and greed towards mutualism, empathy and altruism. Empowered belonging insulates us against demagoguery. As Hannah Arendt pointed out, it was from the dust of pulverised societies that fascism arose.”

  • Tristan Ward 29th Dec '17 - 2:29pm

    I am delighted to see someone of Tim Worstall’s eminence here. As so often Lib Dems are leading the debate.

    I don’t however buy into the accusation that Jim Wallace distorted Mr Worstall’s position. Both say that public spending is funded from tax (no argument there!) and presumably public spending includes money spent on welfare. Welfare is by its nature redistributive. Mr Worstall argues welfare should be cut to reduce taxes, and accurses Jim Wallace of misrepresenting his position. But Lord Wallace does not. The original article clearly states (first paragraph) Mr Worstall’s position is “cutting out most welfare benefits could take the UK down below a 30% tax take.

    Lord Wallace’s article goes on to be very clear that one of the arguments for higher taxes is redistribution. He praises Martin Wolf in the FT for stating the blindingly obvious (to me at least) that excessive inequality leads to political instability. The last sentence of he articles is “Liberals and social democrats should grasp the argument that an open, democratic society rests on a sense of common citizenship, shared community and social justice, and that redistributive taxation is an essential element in building and maintaining that sense”.

    There is of course the statement highlighted by Mr Worstall that “Above all,[the IMF]t calls for higher taxes, to invest in public services”. Fair comment. But that is perfectly possible and a legitimate concern for debate as well. Mr Worstall implies (we are told – I can’t read the Times article referred to since it behind a paywall) that the standards of public provision of Singapore and Hong Kong are all that are required. I don’t know much about the public services of those territories, but it is absolutely legitimate to argue that UK ones should be higher. Here are two reasons – one is that the Brtish demographic may require it in terms of numbers of elderly people requiring pensions and care (I do not know the fact here) and two – that payment by the state for such public services are in any event redistributive – in that if the state provides a decent pension and decent health care funded by a progressive taxation those replying on it do not need to pay for such provision themselves.

  • William,

    I think Liberal Democrats need to present a distinctive economic approach that is aligned with the basic philosophy of social liberalism and that puts the interests of the individual and communities at the centre of its model.
    The flaws in the neoliberal model of trickle down economics have been exposed by the financial crisis and its aftermath just as the Keynesian consensus fell apart in the 1970’s.
    Monbiot is right to draw attention to nature of global finance and the need to engage with the impact of globalisation on domestic economies as well as the urgent need to develop sustainable economic and political models that can deliver prosperity, democracy and community for all.
    Adam Smith set out the canons of taxation that underpinned the development of modern systems of public finance – 1) Cannon of equality or ability, (2) Cannon of certainty, (3) Cannon of convenience, and (4) Cannon of economy.
    Tax would be regarded as uneconomical if it checks the growth of capital or causes it to emigrate to other countries, In the words of Adam Smith:

    “Every tax is to be so contrived as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state”.

    Adam Smith, in his 1776 book The Wealth of Nations, first rigorously analyzed the effects of a land value tax, pointing out how it would not hurt economic activity, and how it would not raise land rents.

    “Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.

    — Adam Smith, The Wealth of Nations, Book V, Chapter 2, Article I: Taxes upon the Rent of Houses

  • William Wallace 29th Dec '17 - 3:36pm

    Tim Worstall’s article was most concerned to attack the idea of redistribution. But, like others in the free market think tanks, he failed to clarify whether he wants to cut redistribution altogether, or merely squeeze welfare for working-age adults further. Rising life expectancy and medical advances mean that the cost of supporting our elderly will continue to rise; the Office of Budget Responsibility has just suggested that public spending on health and social care alone will rise to15% of GDP over the next 30 years. To make his sums add up, Worstall should recommend privatisation of health and cutting old age pensions. That’s the US libertarian vision, not a path to an open, liberal society.

  • Tristan,

    it’s worth noting what the IMF has actually said http://www.imf.org/en/News/Articles/2017/12/19/mcs122017-united-kingdom-staff-concluding-statement-of-the-2017-article-iv-mission

    “Over the long term, population aging will put pressure on the public finances, while productivity developments and Brexit-related effects may exacerbate the challenge. The Office for Budget Responsibility (OBR) projects that annual spending on healthcare, long-term care and pensions is projected to increase by 1 percent of GDP between 2020 and 2025, and by much more thereafter. Output losses associated with Brexit, or a failure of productivity growth to recover more generally, would shrink the revenue base from which to meet these spending demands: each 1 percentage point decline in GDP is estimated to decrease net revenues by about 0.4 percent of GDP. And if Brexit leads to the movement of a meaningful share of the relatively tax revenue-rich financial sector outside the UK, available revenues could fall even faster… the UK may in the future face difficult decisions about the desired size of its public sector, as well as the mode of delivery and financing of public services.”

    “Under these circumstances, greater reliance on revenue measures for consolidation than in recent years may be warranted. Deficit reduction since the financial crisis has relied mostly on spending measures. While the government should continue to seek the best value for money in public spending, a more balanced approach to deficit reduction may be called for in the future. Beyond their revenue impact, tax reforms can also be justified on efficiency grounds. Scaling back preferential VAT rates for certain goods would increase tax neutrality. Better aligning the tax treatment of employees and the self-employed would improve fairness and bring the tax system in line with evolving employment practices. Financial stability could be enhanced by reducing the tax code’s bias toward debt, for example by adopting a tax allowance for corporate equity. Rebalancing property taxation away from transactions and toward values would boost mobility and encourage more efficient use of the housing stock. Finally, on the spending side, removing the triple lock on pensions would help contain rising demographic spending over the long term.”

  • @ JoeB “Finally, on the spending side, removing the triple lock on pensions would help contain rising demographic spending over the long term.” I thought we were trying to stop reminding the public about Lib Dems breaking promises.

    As for land taxes, some simple questions, Joe.

    In a practical sense how would you implement the nuts and bolts of it in legislation and administration and how long would it take to set up the bureaucracy to run it ? Would it be a national administrative arrangement or would it be put on the poor old local authorities again ?

    Can we have some practical answers please instead of Georgian theory, and could you explain why Lloyd George was forced to abandon it ?

  • Tony Greaves 29th Dec '17 - 5:42pm

    Lloyd George was forced to abandon it because the support for it in Parliament had evaporated and he was for most things a Puppet PM in a Conservative government.

  • Agreed, but it also had something to do with the need for an annual valuation – which had not happened since 1909.

  • Peter Hirst 29th Dec '17 - 7:04pm

    Behind the tension between leave and remainers there is an even more fundamental dilemma about what sort of society we will become. By winning the referendum, the right wing of the Tories seem to be assuming they have also won this other battle. And they seem to be winning this delusion also. Do we as a society believe in the state as a redistributive organ, believing that though entrepreneurs and corporations are essential there is an aweful lot more to a thriving society? It also needs carers, professionals, inventors, artists, spiritual and religious leaders, sports people, musicians etc. They should also be rewarded as they contribute to our society as much as those who earn the money that pays for our infrastructure and services. the way to do that is by redistributing some of this money to them through grants, benefits and loans.

  • David Raw,

    The framework for a transition is largely in place already. Business rates are based on rateable values (i.e. rental values). These same rental values can form the basis for LVT with the charge split between owners (rates on land rents) and local service charges to tenants based on a lower % of building rents. The valuation office will determine the proportionate split of rents between land and buildings based on their knowledge of the area (It idoes not have to be done on a property by property basis, just by area). Occupancy costs for business premises would not be expected to change to any significant degree.
    The major change comes about by treating residential property rental business on the same basis as other busineesess rather than being exempted from rates. Land with planning consent, Investment property held by offshore investors or trusts and property not occupied as a main residence would all be brought into the LVT charge. Small business rate exemptions would remain in place.
    With respect to reform of Council tax again much of the data required already exists. Local authorities collect data on residential rents in their area for the purposes of setting the rate of Local Housing Allowances. There may be a number of different allowances set within a single local authority area.
    Average rents are calculated for the LHA and this same data can be used to assign rental values to properties based on their existing council tax band. Again the same valuers would determine the proprtionate split between land rents and building rents. What is important is the relative charge i.e. that similar type propeties are assessed to the same LVT charge. Mark Wadsworth has prepared a paper using a similiar approach in Scotland http://localtaxcommission.scot/wp-content/uploads/Submission-from-Mark-Wadsworth.pdf
    Using this approach only the 200,000 or so properties in the highest Band H would be valued initially and further valuations of properties in bands E,F & G could be undertaken on a rolling basis. It may not be worthwile or necessary to undertake individual valuations for properties below band D.
    Introducing a homestead allowance for owner-occupied property (50% of median rents in Pennsylvania) allows us to make the replacement LVT far more progressive than the current council tax assessments. As with business rates, the owner-occupiers would pay the LVT on land rents and a local service fee. Tenants would pay a local authority service fee only.

  • I’d be happy to pay a bit more tax in return for the comfort of knowing that basic services can be maintained, and I’d be happy to pay a bit more again if I could be confident that public sector workers were going to get a fair pay rise, which in turn would help the national and local economies.

    Unfortunately, we’ve reached a situation where all politicians have been promising low taxes, or at worst, to tax ‘other people’. Many of us tax-payers have been lulled into thinking that we can have something for nothing, or at least nothing to us, and the media have supported that thinking. Politicians seriously proposing something else will find it’s a tough attitude to change.

    As an aside, we have to expect that social media makes it very easy for people of all political persuasions to find and comment on a site like this. Most would consider it bad manners to ‘infiltrate’ a community they don’t genuinely support, just to cause disruption or as an attempt to misrepresent support or opposition to a particular policy. However, some people treat politics as a battle and believe in that one particular policy so much that they think of it as just another campaign tactic.

  • Fiona: Not everyone could afford to pay increased taxes but many people could do so. Unfortunately they have the ear of the right wing press whose owners also resent paying and use their newspapers to promote their own selfish interests. It is also likely that we are trying to maintain a standard of living which is no longer sustainable as prosperity moves to the Far East and other formerly poverty striocken areas. We in Western Europe have no special right to be the most prosperous people on earth unless we earn that right.

  • David Evans 30th Dec '17 - 1:12pm

    Joe B – and what is the analysis to determine the likely electoral effect on the voting intentions of those affected (and those thinking it would affect them) if it is implemented in that way? Not that I’m at all jaundiced about your proposal, but I have become rather sceptical in the last eight years of groups within the party promoting their big idea for a quick fix to solve their view of the nation’s problems, which have simply resulted in the one party that could act to solve those problems in the longer term totally sacrificing its future in the short term and so actually making things worse.

  • David Evans,

    The resolution foundation published research in September showing how millenials are priced out of the housing market and have just released research indicating that those with homeowing parents will need to wait until an average age of 61 until they inherit their parents estate. LVT is aimed at assisting this group and those without housing wealth.

    The Mansion tax proposals were electorally popular as they focused on higher value properties https://www.theguardian.com/commentisfree/2014/nov/19/mansion-tax-myleene-klass-ed-miliband-self-deception-rich.

    ALTER’s proposed program for the introduction of LVT begins with bringing land with planning consent (land banks), let property and Investment property not occupied into the Business rates regime (with small business rate exemptions for smaller landlords). This impacts developers sitting on undeveloped land in the expectation of further capital gains, landlords with significant income from propery lettings (including those renting to students and housing benefit claimants where little if any council tax is paid at present), and overseas and domestic investors holding propery empty as an investment or as a 2nd holiday home.

    The Counil Tax reforms are aimed at redistubuting the charges so that they fall proprtionally on housing with higher rental values. Using a homestead allowance for each local area means that the lowest value housing in a paticular area (even in high housing price areas) will generally pay significantly less than the existing council charge while higher value housing will generally pay the same or more.

    ALTER’s proposals are to bring the Counci tax charge into the self-assessment regime, so that homeowners will pay tax on land rents over and above the homestead allowance at income tax rates i.e. 20%, 40% of 45% for the highest earners. The allowance would be set at a level to make the policy revenue neutral – probably at aroubnd 50% of median rents.

    Most basic rate taxpayers would benefit from significant reductions in council taxes, tenants would pay only a local service charge for rubbish collection etc.

    Pensioners, in above average value property for their local area, who have insufficient income may defer paying LVT until they die and the house is sold. This was the system in place in Northern Ireland for several years (it was scrapped because so few people applied), so there is no need to reinvent the wheel.

  • David Evans,

    Lord Wallace is right when he says we need to talk about tax. The 2017 party manifesto’s give an insight into the approach of the main political parties in the UK to issues of Land Value Capture and local government finance.
    Conservative:
    “We will work with private and public sector house builders to capture the increase in land value created when they build to reinvest in local infrastructure, essential services and further housing, making it both easier and more certain that public sector landowners, and communities themselves, benefit from the increase in land value from urban regeneration and development.”
    Labour:
    “We will initiate a review into reforming council tax and business rates and consider new options such as a land value tax, to ensure local government has sustainable funding for the long term.”
    Liberal Democrats:
    “Review business rates and consider the implementation of Land Value Taxation.
    In the introduction to After the Storm , Sir Vince Cable noted:
    “…one of the main tasks of opposition parties [is] to redesign the archaic, inequitable and unpopular system of property taxation… to make council tax more closely proportional to the value of property. A more radical and far-reaching reform would be to give practical substance to long-mooted ideas for the taxation of land.

    In the concluding paragraphs of the book he wrote:
    “…Wealth taxation in the form of proportional levies on property values or land values are … favoured by economists because they do …not discourage work or saving. We have proxies for wealth tax in the form of capital gains tax, but it excludes owner-occupied property and addresses only capital appreciation, not the stock of capital, which is …easily avoided through inter vivos gifts.
    A.. superior approach would be a land value tax. Such taxation has the additional merit of helping to deflate volatile bubbles in land and property values, and discourage the hoarding or inefficient use of land.
    …the instability and inequalities generated by property and land markets were a major feature of the financial crisis. They lie at the heart of a distorted system of credit. They underpin a growing divide in the housing market between social classes and generations. And they cut to the heart of what it means to have a common identity, to belong to the same society. Political indifference is not sustainable.”

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