Clegg’s Council Tax proposals make no sense

I’m afraid my brief excitement that Nick Clegg was about to ditch local income tax proved to be groundless. As Valerie pointed out, he spelt the policy out on the Guardian website earlier this week. At least I think he did:

Mr Clegg added that he is committed to replacing council tax with a local income tax, but that he wants to cut council tax for low- and middle-income families by introducing a progressive tax on those living abroad (sic – is it me or are those two clauses contradictory?).

He plans to raise £1bn from non-domiciles to fund council tax cuts for millions of households. His proposals include taxing non-domiciled taxpayers at 10% on their overseas income, in a system similar to that used in the US.

I think the idea of a tax like this on non-doms is an interesting idea, but it isn’t a progressive tax, it’s a flat rate. Secondly, if he’s committed to scrapping local income tax, why this extra policy which will only add confusion to what many regard as an already complex set of proposals?

The argument seems to be that it will take a while to introduce local income tax and we should to this in the meantime. But it will take a while – pretty much the same while – to introduce a tax on non-doms. The argument against going straight from council tax to a form of land value tax has always been that it will “take a while”; indeed the party remains committed to a land value tax in the long term. So why not just do the switch in one fell swoop and leave local income tax out of it altogether?

Clegg’s proposals also seem to contradict one of the fundamental reasons why the Lib Dems are calling for council tax to be scrapped. If the rate that a family pays in council tax is so good at determining whether they are of low- or middle-income, why scrap it at all? I thought the Lib Dem argument was that it is a regressive system? The fact is that outside of Wales, Council Tax has not been evaluated since 1991. People selling houses often find the property leaps up two or more bands once the sale is completed. What Clegg is suggesting here is a system that will benefit an awful lot of people who are currently under-taxed.

These proposals contradict the Lib Dem commitment to increasing the amount that local authorities collect locally. What he’s suggesting is a national tax to subsidise a local tax – in short, that we should go the other way.

In short, this is a mess. The truth is, there’s actually very little you can do to offset a tax that will only raise £1bn that sounds impressive; raise personal allowance by a few quid? The temptation is always to focus on those small taxes that actually raise very little but which cause the public a disproportionate amount of upset – see Gideon Osborne seeking to slash inheritance tax for example. You could do a lot with it on the spending side, but we’re not supposed to do that these days.

Ultimately, this policy is a mess and the way Clegg has presented it is a mess and it is axiomatic of the sort of thing that is all too frequent in Lib Dem policy making: a policy bite which doesn’t accord with our broader strategic vision. I’m sorry if it is “purist” to suggest we need less rather than more of this sort of approach, but that’s my view.