Tag Archives: local-income-tax

Is Nick Clegg about to ditch local income tax?

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Discussing Clegg’s interview with David Mills of GMTV Sunday earlier, it occurred to us that the following quote has potentially enormous implications:

Nick Clegg: Er, yes, but I mean there are other ideas. For instance there are other ideas, I mean for instance I’ve also this week been floating ideas for how I think we should introduce a 10% tax on the non-domestic earnings of so-called ‘non-doms’. In that particular case that raises about £1 billion. I would like that to go to alleviate the burden of Council Tax on those in Band A and band B properties, those on the lower rung of the property ladder, if you like. But it’s just an example of where we can be creative in trying to find that extra money in order to fulfil that pledge, and I’m absolutely confident that we will under my leadership make that fixed pledge by the next general election.

Is this just idle blue skies thinking (which you surely must never do on a TV interview) or a hint that under Clegg the Local Income Tax policy is to be scrapped or at least adapted so that council tax will remain in the picture for the foreseeable future? Because you can’t alleviate the tax for low bands if you are going to scrap the tax altogether.

Is this an unintentional slip, revealing an agenda to move the party away from its existing LIT commitment? He was apparently quoted as saying nice things about site value rating earlier this week although I don’t have chapter and verse. Is a pattern emerging?

Speaking personally, such a shift would be fantastic: despite all the wobbles it could even win my vote (notwithstanding details, etc). Amongst many other party members though it would probably be about as popular as drinking a bucket of cold sick.

This isn’t an issue to be trifled with. If Clegg is thinking along these lines, mere hints will not be good enough. He would have to press it home. It would be a high risk strategy of exactly the kind that so many of us have been calling for him to adopt over the past few weeks.

Dare to do it Nick; you know you want to! 🙂

Progress and Poverty

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The above title is also the name of Henry George’s greatest work (which I strongly recommend everyone on the planet to read). I mention this because, while the Lib Dems broadly voted the right way during their poverty debate yesterday afternoon (certainly in rejecting the option to support differential age rates for minimum wage), I couldn’t help but feel there was an enormous Georgist hole in the paper.

Why? Because despite what we managed to do today, you can’t divorce taxation from issues relating to poverty. One point I didn’t make this morning was that one of the other poor decisions the party made on its tax proposals yesterday was the decision to effectively kick our “long term goal” of removing people on incomes of less than £10,000 from income tax into even longer grass. This has been sacrificed in favour of a crowd pleasing commitment to cut income tax by 4p in the pound (entirely neutralised by an income tax hike due to the introduction of LIT). Just as Labour does, we will continue to force people on minimum wage to pay income tax – not only is this unfair to the individual, but it adds inflationary pressure onto the minimum wage (since one of the considerations is not unreasonably whether you can afford to live on it) and thus discourages employers to recruit in this country.

I supported the amendment to introduce flexible working for all employees (not that I had a vote…) but again, this adds to the costs of labour. If such policies are to be successful we must somehow relieve the pressure on employers in other ways, and that brings us back once again to personal allowance.

On the other hand, so much of this paper was concerned – rightly – with housing. Yet the focus seemed to be on targets and empowering local authorities to tackle the issue themselves (there is, come to think of it, a slight oxymoron there). I remain sceptical of the rose-tinted view that all of this can be achieved by fiddling with planning law and introducing Community Land Auctions: we need a more fundamental shift in approach.

Of course, LVT would have both enabled us to take the bottom bracket out of taxation, create greater incentives to build housing and dampen speculative investment in property. It’s no accident that George’s book, which develops the argument for authorities to collect economic rent, has as a starting point the need to attack poverty. It just seems that we are attempting to tackle this area with one arm tied behind our collective back. Worse, by scrapping residential property taxation in the form of Council Tax, in many ways we make it worse.

The Federal Policy Committee really need to throw us a bone here. At the very least, so as to demonstrate that our commitment to LVT is more than just “jam tomorrow” they should commission a review about how we might facilitate its introduction. Tony Vickers’ book Location Matters vividly spells out what a government would need to do to introduce the tax and it would certainly take a while. But if we aren’t prepared to even think about it until the start of a second term, then what we’re really promising is to not introduce the tax until the start of a third term. It’s no wonder that Georgists feel as if they are being paid lip service and nothing else.

Will the Lib Dems finally get serious about taxation this morning?

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Mark Braund is remarkably generous about the Lib Dems on Comment is Free this morning, saying that “what makes the Lib Dem position on tax most interesting is their apparent willingness to discuss the far more radical idea of land value taxation (LVT).”

The truth is, this debate will be happening in the face of the Policy Committee and many members of the Party’s front bench. Last year’s Tax Commission report promised jam tomorrow, promising to revisit this issue. This year’s “Reducing the Burden” report makes almost no reference.

The debate within the party over LVT is often portrayed as an either/or deal between it and local income tax. Actually it is rather more complicated than that. Regardless of LVT, replacing Council Tax with a tax based on incomes will mean that we have no residential property tax. At a time when house prices are at an all time high, removing the one tax which is discouraging speculative investment – however slightly – is simply irresponsible. The Council Tax – Local Income Tax switch will lead to an average property price increase of £15,000. Great news if you already own a home; a slap in the face if you don’t. Worse, many people struggling to get on the property ladder will see their tax bill rise, while people sitting on enormous unearned wealth in the form of a house which has increased its value tenfold and more since they bought it, will be taken out of taxation altogether.

Party leaders like to claim that, regardless of the economic disbenefits, the policy is enormously popular. One of my less political friends naively put that to the test during the 2005 General Election by forwarding the party’s tax switch calculator website onto all his friends. He was shocked to find that almost all of them duly reported back that there was no way they were going to vote Lib Dem as they would have to pay more tax. When the party publishes figures to “prove” that most people would be better off, they like to cite pensioners and single income households. If the economic reality forces you to live with your parents or in an HMO, you are simply screwed.

Council Tax is a dreadful tax, but replacing it with LIT would be worse. You couldn’t replace CT with Site Value Rating (the local version of LVT) instantly, but you could make it fairer – as the Lyons Committee suggests – and begin work on replacing it with a progressive land value tax. What’s more, you could still have local income tax simply by localising 4p of income tax – that would have the added benefit of increasing the amount of taxation that local authorities collect from around 75% of their revenue to 50%, which would reduce the inflationary pressure we currently have on CT.

Longer term, we need to consider the benefits of a nationwide system of LVT. As Tony Vickers explains in his new book Location Matters, this would not only dampen speculative investment in property and make many more houses and derelict sites available on the market, but it can be used to invest in big infrastructure projects such as Crossrail and even be used to replace the Barnett formula. Much work would need to be done to introduce a pure system of LVT, but it could be done over the course of two parliaments. The Lib Dems’ vague promises on LVT, as they stand, aren’t a promise to do anything at all.

Hopefully the debate this morning will go the right way and the Local Income Tax obsessives will be thwarted to at least some extent. But either way, the party’s policy committee really needs to start taking a serious look at this and evaluate policy on the basis of what is best for the country rather than the short term (and highly debateable) political gains of introducing such economically irresponsible policies.

The first nail in the coffin of Local Income Tax?

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I’ve been very good this past month and have managed to keep schtum about the Liberal Democrat Youth and Students’ decision to reject local income tax in preference to land value taxation until after the elections were out of the way. Now I see that the entire motion is up on the ALTER website, I suppose my self denying ordnance can come to an end.

LDYS has a proud history of leading where the party subsequently follows, and I’m hopeful that this will prove to be another example of this. And it is timely, with the National Institute for Economic and Social Research comparing the rise in property prices to the national debt. Aida Edemariam wrote a good summary of how the problem is affecting the whole of the UK in the Guardian on Friday. We have to do something, and a tax on land values is a lot more economically respectable than a crude property tax.

One of the problems the party faced in the latest round of elections was a failure to stand out from amid the crowd. Taking on intergenerational equity would give us a USP. It isn’t simply an old-versus-young issue as older people who were simply in the wrong place at the wrong time have lost out just as much as the younger generation who are now left with the consequences. The introduction of any new tax could be matched by a cut in other taxes, ranging from existing property taxes such as stamp duty through to income tax. Such a tax shift need not be unpopular.

Fundamentally, we have to tackle this situation whereby people have more incentive to invest in bricks and mortar than in stocks and shares. That is bad for the economy whichever way you look at it. I don’t want to sound all Marxist, but if the political system doesn’t solve this problem, the economic system will do it for us in a way that will be much more painful. I’m amazed that the political class isn’t looking at the emerging picture and isn’t worried. To be fair, some individuals such as Vince Cable and David Willets, have been warning about this for some time, but their views have been falling on deaf ears.

But there is no prospect of Local Income Tax on the horizon. With the combined SNP/Lib Dem seats in the Scottish Parliament 2 short of a majority, it won’t be introduced there. Labour and the Tories have resisted the simple populism of LIT with good reason: they appreciate the danger of scrapping property taxation altogether even if they lack the courage to introduce a proper system that doesn’t have the flaws of council tax. Rather than dismissing this as stupidity, the Lib Dems ought to consider why this is one popular policy our rivals (except for the SNP, which in itself should tell you something) have declined to steal.

I still have high hopes that sooner or later the Lib Dems will realise that this is one issue that we could really make our own. Gordon Brown’s announcement to cut income tax by 2p in the pound has forced us to revisit our taxation policy (it’s amazing how much of the paper we passed last year has been borrowed by the Tories in Labour in such a short space of time). Hopefully, more radical minds will prevail.