The Apollo Project
Liberal Ideas for the 21st Century
Sunday, November 20, 2005
The tax debate
by Peter

Charles Kennedy and Vince Cable surfaced in the Guardian the other day to let the world know where the thorough-going review of policies had got to.

The answer seemed to be not very far - or at least the emphasis was firmly on continuity.

On tax rates, it seems that the 50% rate still has some supporters. I find this hard to swallow - certainly in combination with the other elemnts of the package.

For example we are still talking about replacing council tax with local income tax. This means shifting the burden of taxation away from people who own things and towards people who earn their living. And if council tax is simply abolished it means a one of capital boost for all those people who earn property.

If this wasn´t enough we are also still talking about free personal care for the elderly - no matter how many assets they are sitting on. Now I broadly agree with James Graham on this general issue. On his blog he wrote that

We shouldn’t squeeze the wealth-creators of today, simply because we didn’t squeeze the wealth-creators of yesterday enough. I have no objection to my taxes going on basic pensions because we live in a civilised society with a welfare safety net. I have a very major objection to my taxes going on ensuring that pensioners who own large assets that will, in the main, be untaxed until they die, get to keep those assets. Lib Dem policy currently pays lip service to asset-poor, income-poor pensioners, while concentrating entirely on providing subsidies to the asset-rich, income-poor (via the abolition of council tax and free nursing care). This is theft, pure and simple, which has almost nothing to do with social justice: it isn’t the poorest who actually benefit.

We need to think hard on this. In 2005 we seem to be in favour of a big shift from income-earners to asset owners. The social justification for this is questionable: the economci impact unlikely to be positive.

On State spending as a share of GDP, Charles and Vince pronouce in favour of 41-42% (I assume that this is over the course of the next economic cycle). This is higher than I would like - but not by much.

This is work in progress and I hope we make some. There are big questionas to answer. Labour has tried to revive/improve public services with massive increases in spending and the imposition of complicated targets. The results have been disappoointing.

And Labour have also sought to improve labour-productivity - again with disappointing results.

We need to be able to take on the other parties in these areas. The 2005 manifesto did not take us very far. The problem is that much of the party seems to think that tax policy is simply a facet of social policy. The accusation that Liberal Democrats don´t spend enough time thinking about the economy still, sadly, carries weight.
posted by Peter Pigeon @ 11:33 am  
  • At 20 November, 2005 14:56, Blogger Simon said…

    Absolutely agree with your assessment. The simple fact is that the leadership are way too timid. Personally, I am increasingly thinking that this is because Kennedy doesn't seem to have much of a project, and doesn't look like he is going anywhere. He scored some good points this week on Child Support and has seemingly triggered a good 'national debate' on this issue - but reforming a broken public service does not a political project make. Increasingly also, he looks bloated and tired. I think the time has come for him to move aside.

  • At 20 November, 2005 21:29, Blogger Liberal Neil said…

    IF the Council Tax was property tax your argument would make some sense, BUT it isn't. It is a tax on the people living in a property based on the assessed value of that property. People pay the Council Tax regardless of what they own.

  • At 21 November, 2005 11:24, Anonymous Valerie said…

    I'm also disappointed that the 50% rate looks like staying, although the cuts at the other end are good news.

    The symbolism of the 50% rate (I'm thinking in terms of pure symbolism, rather than earning levels) must be complete anaethma to the soft Tories we should be looking to win over, instead of handing them to Cameron on a plate.

    Of course, if people have extensive confirmation of the opposite from canvassing then fair enough, but from anecdotal evidence I'm sceptical.

    There's also the image it projects abroad, in terms of competitiveness...but that sort of calculation seems to be totally absent from Charles Kennedy's way of thinking, although not Vince Cable's.

  • At 21 November, 2005 13:19, Blogger Peter Pigeon said…

    Liberal Neil

    With respect, Council Tax is clearly a tax on housing assets. In the case of an owner occupier this falls entirely on the owner. In the case of a rented property, the incidence of the tax may be shared between owner and tenant.

    But removing the tax would be all in favour of the landlord (his capital asset would be worth more) and tenants would find it harder to buy.

  • At 21 November, 2005 13:23, Blogger James said…

    The symbolism of the 50% rate (I'm thinking in terms of pure symbolism, rather than earning levels) must be complete anaethma to the soft Tories we should be looking to win over, instead of handing them to Cameron on a plate.
    Three general elections of fighting elections with that policy would suggest otherwise.

    It will be a waste of time trying to attract more "soft Tories" - anyone who has stuck with them in 1997, 2001 and 2005 is highly unlikely to do so now. While it is true that we would want to minimise the number who go back to the Tories, there would not appear to be any evidence that this policy - particularly if it is combined with a regime of tax cuts - will be much of a factor.

  • At 21 November, 2005 13:25, Blogger James said…

    With respect, Council Tax is clearly a tax on housing assets.
    With respect, it may have been in 1991, but with no revaluation on the cards, it is ceasing to look like it is based on anything.

  • At 21 November, 2005 15:16, Anonymous Valerie said…

    I should have said borderline or dormant Tories - including those who went over to Blair. I wasn't thinking so much in terms of people who voted solidly Tory in 1997, 2001 and 2005.

    Still, many of them may have done so with increasing reluctance, and to suggest that Cameron rather than us is the answer to their prayers is more than a little defeatist. Whenever is it a waste of time trying to attract non-extreme voters?

  • At 23 November, 2005 01:29, Blogger James said…

    Whenever is it a waste of time trying to attract non-extreme voters?

    Well, this year we ran an election campaign explicitly on getting the grey vote and it didn't work.

    By all means we should have our bases covered, but if this tax increase on the better off can be used to pay for tax cuts on the less well off, then I suspect it isn't going to harm our status with anyone.

  • At 28 November, 2005 08:17, Blogger Richard said…

    It's one of the most persistent myths that we have all the liberal Tories already. There's huge chunks of TRG people who are behind MPs like Tim Yeo but out-of-step with the rest of their party.

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"What is Liberalism?: I should say it means the acknowledgment in practical life of the truth that men are best governed who govern themselves; that the general sense of mankind, if left alone, will make for righteousness; that artificial privileges and restraints upon freedom, so far as they are not required in the interests of the community, are hurtful; and that the laws, while, of course, they cannot equalise conditions, can at least avoid aggravating inequalities, and ought to have for their object the securing to every man the best chance he can have of a good and useful life." C-B.


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