Tag Archives: tax-commission

The Liberal Democrat post-credit crunch economic policy. A blow by blow account.

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John Harris wonders why the Liberal Democrat party faithful seems so incapable of defining what the Liberal Democrats stand for, unlike the masterful Vince Cable. A clue may come in the fact that the party’s core message on the economy has changed in a significant way on at least eleven separate occasions over the last two years despite very few of these shifts actually being party policy.

Let’s look at Liberal Democrat policy since the credit crunch (assuming for a moment that September 2007 is effectively Year Zero). In terms of tax policy alone, we started with a policy paper overseen by Vince, itself the second in as many years, which essentially called for a 4p cut in the basic rate in income taxes to be paid for by increasing taxes on pollution and the rich. Oh, and to replace council tax with a local income tax which would come to, roughly, 4p in the pound. Clear?

By spring 2008, with the storm clouds already starting to look very grey indeed, Nick Clegg started flying kites about tax cuts. By the summer, that had coalesced into a commitment to identify £20bn of public spending “waste” and a vague promise to cut taxes if after identifying all our spending commitments there was a bit left over. At the start of September however, Clegg had announced that he and Cable had agreed that the “vast bulk” of this £20bn would be passed on in the form of tax cuts, a statement which had the predictable effect of sending the party into a complete tiswas.

A few days after that, manifesto chair Danny Alexander further clarified Clegg’s clarification by explaining that Clegg was in fact referring to the “vast bulk” of money left over after the party had fulfilled all its spending pledges, not the vast bulk of the £20bn overall. This of course begged the question of where the small amount of money that was neither going on tax cuts or public spending was supposed to be going. By the autumn 2008 conference, things had got even more confusing. Nevertheless Cable and Clegg managed to get their proposals through conference, although this involved people supporting them on the grounds that we probably wouldn’t end up cutting taxes overall at all.

This new policy, which by now no-one understood, lasted a whole fortnight before the banking bail out rendered the entire thing moot. Unperturbed however, in April 2009, the pledge to drop the basic rate of income tax was replaced by a pledge to raise personal allowance. In July 2009, after what was by all accounts a tense and at times explosive policy committee meeting to agree the party’s pre-manifesto, Nick Clegg announced that the Lib Dems’ “shopping list of commitments” at the next election would be “far, far, far, far, far shorter” despite the fact that the pre-manifesto itself says no such thing. On Tuesday last week Cable published a pamphlet proposing £14bn of government spending cuts which would have to be made to pay off the national debt. This seemed to be suggesting that the party’s list of spending commitments would not merely have to be shorter but essentially non-existent. This vision of doom opened up enough space for Nick Clegg to open conference on Saturday announcing an intention to drop the commitment to scrap tuition fees and to start talking about “savage cuts”. And the position changed yet again on Monday with Cable announcing a new “mansions tax”, a policy which had apparently been written on the back of the cigarette paper which David Cameron had been experimentally attempting to slip between the Lib Dems and Tories the day before. By Monday evening he was arguing for a watering down of the party’s commitment to a local income tax.

Is it really that surprising that we mere mortals are somewhat confused?

I enjoyed conference shocker!

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People who know me may have noticed that by halfway through autumn conferences in the last few years I have become very sullen and withdrawn, wandering around the halls of the conference centre muttering darkly under my breath.

The truth is, in recent years I’ve come to loathe party conferences. They’ve increasingly become worryingly close to the Tory version for my taste, with policy “debates” reduced to Nuremberg-style rallies (the fact that the person speaking at the front usuall has the charisma of a wet fish appears to have escaped people’s notice). The policies themselves have tended to be dire: over-interventionist, full of lazy sloganeering and squarely aimed at the lowest common denominator. By the end of the conference week I had normally lost the will to live.

But not this time. In fact, I really enjoyed myself. This is probably in part due to ego, as I enjoyed the extra attention borne from writing chapters in two pamphlets (Liberalism – something to shout about edited by Graham Watson MEP/Liberator and Community Politics Today/ALDC) that were doing the rounds, writing the Taking Power local party’s guide and speaking in two fringe meetings. But it is also to do with the fact that for the first time in ages I’ve been able to detect tangible evidence of neural activity going on in the upper echelons of the party.

Ed Davey’s plans for revamping our campaigns and communications was better than I was expecting, despite having heard some very good rumours beforehand. The tax paper, while not perfect, has respectable underpinnings and is taking the party – at last – in the right direction in terms of economic policy. Notwithstanding Alex “crass, boorish and more a bruiser than blogger” Wilcock’s mean comments (some of which are very much spot on), as a first attempt at moving away from the party’s usual sloganeering, it isn’t bad. The important thing is to keep padding it out and to keep revisiting it.

In short, the party is moving in the right direction. Still plenty to be irritated about but that’s a far cry from two years ago when I very much thought we were going backwards. Even Ming’s speech outclassed anything that his predeccessor delivered in his 6 years, although he’s still got a long way to go to beat Paddy. Can I suggest borrowing the latter’s trick of using his conference piece as a think piece to challenge the party rather than slavishly following the “Labour – bad, Tories – worse, Lib Dems – yay!” formula that simply flatters the prejudices of its audience?

The only real cloud on the horizon for me was the party’s strategy to involve more women and people from under-represented groups. Apart from Simon’s dreadful diversity motion, which I was the speaker to oppose (although I understand that one of the other speakers got a speech on the basis that they said they would speak against and then didn’t – some very dirty tricks there as it unbalanced the debate), the announcement of a £200,000 “leaders fund” was worse than I was expecting.

Let me be clear about something. This £200,000 is for supporting candidates who have already been selected. Not a penny of it will go on outreach work to attract new people. Not a penny of it will go on training people interested in becoming candidates. Not a penny of it will go on mentoring, coaching or support. Somehow, individuals at the top of the party have convinced themselves that the main problem the party faces is giving selected candidates in target seats sufficient support. It is the single most arse-backwards policy I have ever come across and the party will – I promise you – pay the price.

Don’t get me wrong, I’m not suggesting that the existence of this fund won’t help to convince people that if they get selected they will get sufficient support, or that that support isn’t needed. But in order for us to truly ensure that our candidates better reflect Britain we have to go out there and find hundreds of new people who up until now have not been putting themselves forward. And that costs money.

So be it. All in all, I’ve come away from the conference feeling enthused and inspired, to the point that in the areas where I’m less happy, I can at least see there is a point in spending time doing something about it.

Zachariah has a George Bush Snr moment

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The Times, 18 February 2006:

Taxes aren’t how Tories will save the world’

A CONSERVATIVE government would not introduce a “green” tax, according to the deputy chairman of the party’s commission on the environment.

Zac Goldsmith, the son of the late Sir James Goldsmith and Editor of Ecologist magazine, who was appointed by David Cameron after he became leader, said that good environmental policy was not about raising taxes or increasing regulations but “shifting emphasis”. “Most environmentalists would come out with a huge increase in taxes,” he added. “I don’t agree. The Conservative Party doesn’t like forcing people to do anything and I don ’t think we have to — most of the obstacles are from bad governance.”

The best way to reduce the country’s dependence on oil and decrease greenhouse gas emissions was to make people aware of the importance of buying local food and introducing energy-efficiency savings in the home.

The Guardian, 31 August 2006:

And, as George Osborne will point out in Japan, we will need to make more use of eco taxes. “We should move some of the burden of taxation away from income and capital, and towards taxes on environmentally damaging behaviour. Instead of a tax system that penalises hard work and enterprise, we need to move towards more effective and fair taxes on pollution.”

This, of course, is a quote from Boy George, who last month described the Lib Dem proposal for a tax shift as a panic measure written on the back of an envelope.

So what’s changed? Why has Zac “Read my lips: no green taxes” Goldsmith and his chums done such a vaulting U-Turn? Could it possibly have something to do with the new Lib Dem policies threatening to strip them of the nice green sheen they have been carefully cultivating for the past few months?

Symbols and reality

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Some more logical gymnastics from Evan Harris:

Evan Harris, the party’s science spokesman, admitted that the proposed package would be more progressive but said he was worried that ditching the 50p rate was a “symbolic” move that would send the wrong signal to voters.

In other words, we shouldn’t bother striving to do what we believe to be right, but what we believe to be popular.

The real problem with Harris’ rebellion is it is a self-fulfilling prophecy. By spending a large portion of Conference week denouncing our policy he threatens to drown out those who would rather explain it. He effectively hands a stick to our opponents to beat us with.

Evan Harris prides himself as a secularist and rationalist, yet he’s going to go to Brighton next month calling us to vote for the equivalent of fairies at the bottom of our garden.

Don’t get me wrong, I have certain misgivings about our proposed new taxation policy – I may even get around to submitting an amendment of my own – but what objections I have are about how the policy will work in reality, not what “messages” it might send out.

Would flat taxes help the poor?

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That an article has appeared in the Daily Mail today claiming that flat taxes would help the poor should come as no surprise. That it is based on a piece of original research by the Joseph Rowntree Foundation however ought to raise at least the odd eyebrow.

In fact, man-bites-dog spin from the JRF notwithstanding, the flat tax is only half the story. What the JRF are also proposing is the creation of a negative income tax system to replace the extremely complicated existing system of tax credits. That sounds more like the bunch of Quakers we know.

Personally, of course, I would go further: most countries worldwide that have flat income tax rates also have significantly higher property taxes. By introducing these (LVT to be specific) at the same time you could significantly reduce the base income tax rate while capturing more wealth from the better off in a more economically efficient manner. But I’m repeating myself.

Social justice – Lib Dem style?

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I really ought to go to bed, but I thought I’d leave you with this little snippet.

According to the Lib Dem Treasury team notes about the tax commission’s new proposals, a retired couple on a £15,000 income living in a Band G house will be £1,578 better off under their proposals (assuming average environmental taxes of £332 per household).

This however is highly misleading, on two counts. For starters, it assumes that the couple OWN their house (i.e. own an asset of between £160,000 and £320,000). If they don’t, have no other assets and are paying minimal rent (I assumed £70 p/w when using this calculator, which is approved by Help the Aged), they would be entitled to full council tax benefit. In which case, they would be around £450 worse off (again, assuming an increase in environmental taxes of £332 per household on average).

Poorer pensioners in smaller houses and on less income would still be worse off by around the same amount (benefits would render their council tax to zero and they save next to nothing with the income tax cuts). Meanwhile, a pensioner couple in a Band H house on an income of around £20,000 would be another £500 better off.

In short, poor pensioners do badly or gain next to nothing, while pensioners on middle incomes do well. And that is before you consider the fact that these wealthier pensioners will be sitting on hundreds of thousands of pounds worth of assets which under these proposals will be exempt from tax altogether.

Could someone explain to me how this is justifiable? And why aren’t poor pensioners included in the illustrative figures sent out to journalists?

For the record, here are the relevant statistics:

  • Average Council Tax Band G: £2,023
  • Average Council Tax Band H: £2,428
  • Change in NI/IT contributions for £15k pensioner couple under Lib Dem proposals: -£82
  • Cost of Local Income Tax for £15k pensioner couple: £33
  • Change in NI/IT contributions for £20k pensioner couple under Lib Dem proposals: +£706.75
  • Cost of Local Income Tax for £20k pensioner couple: £579

UPDATE: As I explain in the comments, I’ve just spotted a flaw in the “entitledto” website that means it occasionally comes up with some funny numbers, and clearly it was last night. However, it doesn’t undermine by basic argument: that these tax proposals favour the wealthy over and above the genuine poor. A Band D couple with £10,000 for instance gains nothing and is still assumed to pay the £332 in extra environmental taxes. I was only actually wrong to assume that a couple of £15,000 would be entitled to full CTB; everything else still holds.

Taxing times

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I have often found myself asking this question, and today is no exception: just what is Evan Harris going on about?

“While these proposals do raise significant amounts of revenue from high levels of wealth, this is less true of high incomes,” he said, adding he would ask for the change at the party’s conference in September.

“It is only fair and balanced to do even more to help those on low incomes by asking very high earners to pay a little more in income tax.”

Given that I don’t remember Evan Harris screaming about helping people on low incomes at any point in the past (in contrast to, say, Vince Cable), back when all the party wanted to do was pile on ever increasing levels of income tax to people at all levels, I have to wonder if it didn’t matter what the Tax Commission came up with, he would simply insist on yet higher taxes.

I have my own criticisms of this paper – some of which I’ve been banging on about for weeks – but this isn’t one of them. The fact that the party at the top has at last realised that taxing wealth and not incomes is both more equitable and economically sensible is welcome. The worry that Evan Harris and his sub-socialist mates may get their way fills me with dread.

Willy waving over 50p

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It looks like we are set for a “war” in the autumn over the Lib Dem Tax Commission’s proposals to drop the party’s commitment to a 50p supertax. The Federal Policy Committee are insisting that removing it should only be an “option” for the party to vote on, while Ming is staking his leadership on getting the policy scrapped – a risky move given the mindset of some Lib Dems to embarrass the leadership whenever possible.

This whole thing does seem completely unneccesary. The motion could be amended if there is a strong movement to keep the policy – the FPC doesn’t have to keep it in as an option. By the same token, Ming’s intervention means that the debate will no longer be about the issue, but about his leadership. This is not a way to make good policy.

I’m reminded of the debate a few years ago over the party’s Public Services policy paper. The Party’s front bench and campaigns department lined themselves up behind a policy to scrap National Insurance and replace it with a hypothecated health tax (which “by coincidence” would raise roughly the same amount of money as the amount we were spending annually on health at the time). Lots of senior figures in the party lined up to stake their reputations on the policy, leaving just a few of us to vote against it. In the event, once calmer heads had prevailed, the party establishment came to the same conclusion as the rest of us – it was a bloody stupid policy that didn’t really solve anything – and it was quietly dropped.

I can’t help but think the FPC are picking the wrong fight over the Tax Commission. As I’ve written previously, the real problem in their proposals (at least as far as the reports about it – including Ming’s own speech last month – are concerned) are that they have a massive property tax-shaped hole in them. That means we are set to go into the next general election with two of our flagship policies being to drop the basic rate of income tax by 2p in the pound AND to introduce a local income tax of roughly 3.5p in the pound.

As far as anyone’s wallet is concerned that is an income tax increase of 1.5p. It is a virtual invitation for the other parties to tear into us for being confused and misleading. I suspect that after the current round of debate has been resolved, calmer heads will again prevail and we will quietly modify this policy. But all that means is that the debate we have this autumn will be completely meaningless.

If the FPC were doing their job, they would be throwing this back in the Tax Commission’s faces. Instead they’re playing chicken with supertax. Pardon me if I don’t sound impressed.

Taxation Okey-Kokey

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The Observer has been given a sneaky-peak of the Lib Dem’s Taxation Commission’s current thinking and it sounds good. 2p off the basic rate of income tax, paid for by increases in environmental taxation and “tougher tax rules for the wealthy”.

By the latter, I’m taking it to mean, at least in part, to some kind of “progressive property tax,” although Vince Cable’s quotation about share income being taxed at a lower rater than general income suggests reform of capital gains. Nonetheless, I welcome it: the Lib Dems absolutely should be the party of low income tax. These reforms suggest a “direction of travel” that I’m very comfortable with.

But there is a cloud on the horizon however. Read carefully, and it is clear that we are just talking about national income tax here. Existing Lib Dem policy is to replace Council Tax with a local income tax of, on average, 3.5p in the pound. If this policy isn’t significantly changed by the Tax Commission, we would have to go into the general election with the highly confusing policy of saying that, nationally, we want to cut income tax while locally we want to pile it on. In net terms, every taxpayer would end up paying 1.5p more in income tax.

Kiss goodbye to any electoral benefit we might expect from the tax shift, in other words: our message to the electorate would be horribly confused. We wait and see what the Tax Commission come up with, but there seem to be two solutions. The first one is to replace Council Tax with something else, maybe a genuine tax on property that is continually revalued (every 1-2 years for instance, like everywhere else: Council Tax is mostly based on 1991 values and thus has little to do with actual values) and taxes high value property at the same rate as low value property. The Band system of council tax leads to effectively a subsidy on the rich that the middle classes have to pay. Better yet, base it solely on site values and leave the capital entirely out of the equation. The second solution would simply be for our policy to not have a policy: local authorities should be free to raise their taxation however they pleased. Of course, that would be pretty meaningless as a policy if 75% of local government expenditure continued to come from national government: a shift to 50% or even 25% would, at a stroke, give local authorities far more clout, and enable us to drop the basic rate of income tax even more.

The problem is, a lot of senior Lib Dem spokespeople have gone on record to say that our local income tax policy is here to say. It seems to me though that we’ve reached a crunch point: either we think income tax is a good tax that we want to shift the burden onto, or a bad tax that we want to shift the burden away from. There is no middle way or third position. That is the decision the Lib Dems, collectively, have to make over the next 3 months. Fudge this, and all our critics will be vindicated.

Lloyd George would approve

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Far be it for me to get a reputation as a nay-sayer all the time. I have just read the three leadership contender’s positions on land value taxation (courtesy of ALTER) and pronounce myself Well Pleased.

There are subtle differences. I’m not entirely sure about Ming/Cable’s line that LVT should be set nationally rather than locally so as to not be seen to be doing a u-turn on LIT. We are already committed to SVR at a local level to replace business rates, and thus it would be a very minor tweak to extend it to households too. On the other hand, I entirely welcome the fact that they are considering national LVT, so perhaps I shouldn’t complain. If anything, Chris Huhne’s line is actually the weakest of the three (although none of the candidates are unequivocally in support).

There are two points to take from this: firstly, none of the candidates need ALTER’s few votes to get them elected, so one can only conclude that this consensus suggests a genuine change of opinion within the Parliamentary Party over the past few years. The headbangers who insisted we drop all property taxation and adopt the taxation policies of a Socialist Utopia are in decline. Secondly, with all of the candidates in agreement, there should be a real pressure on the tax commission to subsequently act on it.

As the opposite is always assume I will again make myself clear: I am not opposed to LIT per se, indeed I very much endorse Chris Huhne’s tax commission proposals to substantially devolve income tax to a local level (doubling or even trebling our current commitment of 3.5p in the pound to be raised locally). I happen to think that taxing land at the same time should be seen as a complementary policy.

The Lib Dems need to be aware that there is significant movement within the Labour Party on this. The latest edition of Renewal includes an article on LVT, the IPPR have just published a collection of essays and Iain McLean has written a piece for Compass on the subject (word). The New Statesman is a supporter (or at least, it was under Peter Wilby), along with respected figures such as the FT’s Martin Wolfe and Samuel Brittain.

True, so far the best they’ve come up with is the Barking Planning Gain Supplement, but I strongly suspect that Brown is listening to the debate and taking notes. When he finally does come up with some kind of plan, wouldn’t it be better to already be there in front of him?