More economically competent than Labour, fairer than the Conservatives – that’s what many at the top of the party hope the message will be come the next general election. If the economy is not doing well at the time of the next election [insert post-watershed phrase of choice]. However, if it is then the party will need the right combination of economic policies to support that proposition.
That is why people such as Danny Alexander are starting to sketch out possible tax policies for the next general election which will involve giving tax cuts to the least well off, paid for by taxing the richest more.
That combination worked well for the party’s £10,000 income tax allowance policy in 2010. The mix of cuts and increases not only made for a policy whose sums added up but also meant the policy appealed across the different wings of the party. The media often rather blunders into overdrawn and inaccurate characterisations of different views within the party, but in this area there are some clear differences between the instincts on tax of, say, David Laws and Simon Hughes. However, the £10,000 policy appealed both to those whose instincts were to cut general tax and also to those who instincts were much more about overall inequality.
Tax cuts for the poorest paid for by tax increases for the richest could repeat that unifying approach again. Moreover, with the party having already made very substantial (albeit largely unheralded) progress on bring tax on capital gains more into line with tax on income, the obvious place to look at next is other taxes on wealth – and that’s an area where there will almost certainly be plenty of scope for political difference from the Conservatives.
Moreover, higher taxes on wealth and tax cuts elsewhere could appeal both to Liberal Democrats concerned primarily about social mobility and also those more concerned about overall levels of inequality.
Quite what taxes on wealth should be is rather trickier as Vince Cable discovered with version one of his mansion tax proposals. Part of the problem with the original mansion tax plans was the lack of communication and discussion within the party in advance of the announcement. But there is also an inherent problem with such a tax on wealth, which is that some people, especially older people living in the south, have a large amount of wealth locked up in property but do not have much give in their income to pay for higher taxes. Inheritance tax used to be the answer to that, though these days it is often seen as politically untouchable – which is why the idea is being floated within the party at the moment of a property sales tax instead.
More popular amongst party members in areas such as South West London, though not in Whitehall, is the idea of adding extra property bands at the top end of Council Tax.
Despite the controversies around each of these policies, getting the tax cuts right at the other end of the scale may turn out to be the hardest, because if the income tax allowance is £10,000 by 2015, then further reductions in income tax become steadily less effective at helping the least well off as more and more of them are not in the income tax system. Once the details of the welfare changes have be finalised (and expect plenty more debate in the Lords as the current bill makes its progress there), it may yet be that the tax cuts part of the package actually is better delivered in the form of increased spending – but that would open up the different tensions within the Liberal Democrats.
The practical implication for all of this for party members? Political predictions running years into the future have an extremely low success rate, but it’s likely that if you want to influence a key part of the party’s 2015 manifesto, it’s certainly not too early to start getting stuck into debates and policy making over tax at both ends of the spectrum.
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23 Comments
Tax free minimum wage – BOOM!
Undeniably the right overall approach. It is the huge I equality of inherited wealth that so damages social mobility, though it is important that we do not so equalise as to remove the incentive for individuals to work hard, accrue capital and provide for their children.
The mansion tax can work if you allow the annual charge to be deferred and made as a charge against the property payable on death, sale or transfer.
@BobbieM That’s a good idea, but what taxes would apply to it? Presumably if the allowance was 10k then income tax wouldn’t be relevant. National Insurance? Anything else? Certainly an idea worth looking at.
I’m most interested in seeing tax simplification forming the centrepiece of our future tax policies. A simpler tax system is more transparent, harder to evade and eases administrative burdens on businesses and individuals alike (as well as dispensing with the need for tax consultants – an end in itself!)
This would ideally mean wrapping all existing taxes on wealth or property (SDLT, inheritance tax, council tax, business rates, TV license, CGT) into one big (fiscally-neutral) comprehensive use-blind land value tax. (The IHT would be a necessary inclusion to help make it politically viable (ha!) and wouldn’t be necessary because LVT is inherently redistributive.
It would also mean (though I realise I am in the minority of LD thinking on this) merging income tax and NI (both employer and employee) and then flattening them and doubling the personal allowance. It’s a Labour wet dream that taxing production in a mind-numbingly complex manner is a great way of getting equality, but all the literature suggests otherwise, and I can’t see much equality in the world right now. Aforementioned wealth tax would be infinitely more effective at tackling huge inequality anyway.
As an aside, why on earth are we allowing a public debate to be held on “undeserving vs. deserving poor”, when the pertinent debate should be “deserving vs. undeserving rich”. Or is that not an argument that a PM who controls £30m of personal wealth tied up in land wants to have?
There is still a good way to go above the £10K basic allowance before income reaches the level considered to equate to relative poverty – 60% of the median.
Raising the basic allowance not only reduces the tax paid by those on low incomes but also increases the incentive to work and, if done in parallel, should reduce dependency on benefits and consequently reduce the cost of running both the tax and benefits systems.
In my view the increase in the basic allowance could well be our best headline achievement by the next election and having a policy of increasing it further could be the best policy for that election. (And will carry some credibility too).
If Danny Alexander is starting to sketch out policies, perhaps he would have the courtesy to inform the formal policy-making bodies of the Party, of which he is a member.
Much as I dislike their general outlook of fingers-in-ears economic denial, organisations like UK Uncut have a point about loopholes and avoidance for high earners – we should be more honest about how much they do pay, and whether that is alright. It’s a popular issue, and it’s not something Labour should be able to dominate uncontested.
Resolving the 40-50p tax rate issue will be a major issue in terms of tax policy, Miliband having made clear that he’s not in favour of dropping it. There’s room for moderation here, so why not propose a 45p tax rate once the body of the deficit has been eliminated? Not going back to the previous level, but not taxing people out of existence either, proposing a compromise between the positions, garnering sensible, moderate opinion?
That said, reducing VAT back to (and below) the level it was before we came to government should be a greater priority. Fuel duty should also really be cut, or at the least capped, so that it can remain where it lies as the price of oil rises (I would favour a cut in the duty, then a cap).
We’ve done and are doing a great job on income tax, it’s the reason I joined the party. I’m glad that this is being thought of in appropriate time for the next election.
Didn’t Danny write the last manifesto which included the fees pledge which was apparently unsustainable? Is he a fit person to write it again?
This drives me mad.
‘But there is also an inherent problem with such a tax on wealth, which is that some people, especially older people living in the south, have a large amount of wealth locked up in property but do not have much give in their income to pay for higher taxes.’
So what?
I think that the boomer generation have been cosseted quite enough. It is strange, I can almost smell the sweat of granny’s labour soaked into her house price inflation.
Well, this is a kind of mini-revelation. Tax the rich to cut taxes at the other end of the scale? – rather than tax the rich to reinvigorate public services? Ah, I see – so this is just the plain old libertarian, low tax, minimal state, free trade doctrine as sold by the swivel-eyed mainstream of the Tory party. I mean, I might be over-deducing here, but the approving comments seem to back this up. Honestly, this party is turning into a 19th century economics reenactment society.
@Mike Cobley – You are making quite a leap there. It is quite possible to believe that people on incomes low enough to qualify as being in poverty should not be paying income tax, and to also believe in investment in good quality public services.
mike cobley/Liberal Neil
The lower your wealth, the greater your reliance on public services. The article above positions as the lib dems as believing that this situation is best addressed by increasing the purchasing power of the poor, not improving public services. The logical outcome is that they will purchase services once provided via taxation.
It’s a perfectly coherent economic strategy, and a pure Tory one.
The dividing lines between New Labour and the Lib Dems/Tories are now clear. The former believe in using the market to improve public services, the latter in using the market to replace public services.
Mike: Taxes on the wealthiest are even now far higher than they were in the 19th century, so raising them further isn’t turning things back to the 19th century – it would be taking them further away from the 19th century.
g,
no, increasing the ‘purchasing power’ (the economic freedom) of the poor is a liberal economic philosophy, and one which all wings of the Lib Dems are united upon. Actively pursuing less economic freedom for the poor sounds more like the economic policy of Soviet Russia rather than New Labour.
People with economic freedom will purchase private goods and services as they see fit. As with schools and hospitals now, the vast majority will choose to use the public services. There is no indication from this article or its comments that the size of the public sector would be reduced (although I don’t deny that a minority in the Lib Dems actively seek this). A tax ‘switch’ away from lower paid and onto the wealthy is discussed, or alternatively using taxes from the wealthy to invest more in public services in mooted.
I can only conclude that you are either paranoid about what the Lib Dems stand for, or are maliciously distorting our ideas to fit to your agenda against us.
@Duncan Stott
The point I was trying, and clearly failed, to make was that investment in public services was a defining characteristic of New Labour and was something emphasised in their tax policy. The above is different, it focuses on wealth redistribution exclusively.
G,
Tories are not known for reducing the tax burden of the worst off, at least not those in modern history. Liberals have always emphasised choice.
I thought spending like a social democrat and taxing like Thatcher was the emphasis of New Labour tax policy.
Thread,
What Hywel said.
Even Danny admits that they got tuition fees badly wrong now. While you can begin to justify scaling back HE numbers next year with this week’s graduate oversupply figures, the argument didn’t cite macroeconomic policy or realistically accept that all the unis would charge top dollar once Browne’s progressive fee levy was thrown out.
Who are the four who thought this was a good idea for the party and the country? Step forward David Laws, Danny Alexander, Vince Cable and Nick Clegg — i.e., with the departure of Matt Oakeshott and the theatrics of Chris Huhne, almost our entire economic team. The £1.2 billion+ cost to our economy and to government spending that the new fee regime will bring in should be a ringing reminder that this is the wrong policy at the wrong time.
I have pressed each of them on separate occasions to take some responsibility for this if we can rebuild for the future. As this government has trailblazed, it’s never too late for an apology and a U-turn.
— Robson
Make CGT payable on all home sales and use the proceeds to fund halving the rate of income tax between £10,000 and £20,000 to 10%.
I know, i know, i know. More chance of Danny Alexander and Harriet Harman getting married and HH staying at home to look after the kids and do the dishes.
G: You’ve still not explained why you called an emphasis on redistributing wealth from the richest to the least well off “a pure Tory” approach. You must have met quite an unusual selection of Tories 🙂
@Mark Pack
I know it’s a bit of a favourite trope amongst non-Tories to characterise them as being about tax cuts for the rich and making it easier for corporation to screw the little man, and this, to some extent, a fair description of some. But most Tory voters, and MPs, believe that it is right that the richest should shoulder the greatest burden. And you can check their manifesto if you don’t believe me…
http://www.conservatives.com/Policy/Where_we_stand/Economy.aspx
IF we assume for the sake of argument only that the economy starts to significantly recover, then surely we have to restore many of the cuts we said we did not come into politics to make, to quote Nick Clegg?
One of Labour’s main achievements in its 13 years of power was to merely grow the size of the state, while they failed to improve inequality and mobility. I for one am happy to depict Labour as a big state party and the Lib Dems as one that actually wants to improve social mobility. Tax reform ( such as reducing taxes on the poorest through taxes on wealth, assets, unearned income, pollution and reducing pension relief for high earners) has the potential to be a signature Lib Dem position, like support for free trade was 100 years ago.
Mark Pack,
I’m a bit late on the scene, since this post of yours is now in archives, but maybe you will read my comment nevertheless.
“Inheritance Tax used to be the answer to that, although these days it is often seen as untouchable”. Why is it untouchable? One of the achievements of the Liberal Democrats in the Coalition Government has been to stop the exemptions from Inheritance Tax from being pushed up from £650,000 to £2,000,000 for a couple. Why don’t they make more of that, and let it lead to more discussion of the reasons why?
When ordinary expenditure is taxed at 20 per cent VAT, what is wrong with taxing capital gifts and bequests at 20 per cent? Abolish all exemptions for lifetime gifts and agricultural, business and shareholding assets and reform Inheritance Tax into a flat rate tax on giving in tandem with and deductible from a progressive tax on cumulative lifetime receiving.
Use 10 per cent for the elderly – for care.
Use 10 per cent for the young – UK Universal Inheritance at 25. 10 per cent of average wealth of every adult and child in the UK is about £12,500. Introduce UK Universal Inheritance at £2,000 in the first year, £4,000 in the second up to £10,000 in the fifth and hopefully more thereafter.
An eventual ideal target for Universal Inheritance from the 10 per cent plus from the combination of taxes (two taxes are much more difficult to evade than one) would be enough to pay for three years basic tuition fees for those who go to university – say £18,000, a sum which could be very useful in all sorts of ways to those who do not go to university.
All would need a bank account in which to receive the sum. This would help to reduce alienation, financial and social exclusion and basic poverty as a young adult. It would also help to encourage business start-ups and savings for home ownership for others. Some, would of course waste it, but that is for them to decide what is waste and what is not.
British Universal Inheritance (www.universal-inheritance.org – about to be brought up to date) is currently the party policy of the EU-sceptic Liberal Party (www.liberal.org.uk ), to which I belong and which, unlike the Euro-fanatic LibDems, opposed the idea of the UK joining the Euro, and which has retained, unlike the regrettably EU-fanatic LibDems, the traditional preamble to the Liberal Party Constitution calling for Liberty, Property and Security for all. Could the Liberal Democrats learn two important things from the Liberals and become a mainstream political and populist party as a result? I wonder. If they don’t, another party will.
Andrew Tennant,
It is good to see a Liberal Democrat saying that “ it is the huge inequality of inherited wealth that so damages social mobility. And that it is important that we do not so equalise as to remove the incentive for individuals to work hard, accrue capital and provide for their children.”
Does 20 per cent VAT remove the incentive for individuals to work hard, accrue capital and provide for their children?
I always thought that Liberals were on the side of those at the bottom of the pile, in order to ensure that all have fulfilled lives. Some of the comments above make me wonder what Liberal Democrats have become.
It is time to recognise that we must move along the spectrum from Feudal inherited inequality through Conservative Dynastic Capitalism towards Liberal Popular Capitalism with greater equality of opportunity not only in education and health but also in the inheritance of wealth in each new generation.