Thursday, June 08, 2006

Raising Taxes is Part of the LibDem Gene Pool

I ought to be welcoming the Liberal Democrats' conversion to low taxes. Well, I would if it were true. Ming Campbell and Vince Cable - the grumpy old men from the Muppets - are desperately trying to ditch the LibDems' reputation as the high tax party, but it will be very difficult to achieve that. If I thought they had transformed themselves into true, old-fashioned Liberals, who always believed in people's ability to spend their own money better than the government, then I'd think true progress had been made.

But taxcutting is like supporting a football team. You have to believe in it within your soul. It's part of your political being. Unfortunately for most Liberal Democrats raising taxes is part of their political gene makeup and most voters know that. They remember the 1p on income tax "for education". They remember the spending commitments that would have bankrupted the country. They remember the 50p income tax rate. So although the LibDems will want to concentrate on the headline of "2p off income tax" (are they suggesting 2p in the Pound off the education budget?) it's the other measures which ought to be examined in minute detail, as they will dramatically increase the tax burden on the middle classes - just the sort of people the LibDems need to keep hold of (and attract) if they are to repel the Cameroonian advances.

We're all supposed to be saving for our retirement, yet the LibDems are proposing effectively a new tax on savings, by abolishing the Capital Gains Tax taper relief allowances. They say this will hit the "seriously wealthy". No it won't, because they can afford tax accountants to get round it. It will hit middle England - the kind of people who own a few shares, or maybe a second home. This measure alone will raise £5 billion, they say. They're going to reduce tax relief on private pensions, raising a further £7 billion. Granth Thornton have calculated that this could cost some people £26,000 a year! Feel those pips squeak! Denis Healey will be nodding in approval.

In addition, they're going to hit us with £8 billion of green taxes. Ming Campbell is quoted in the Daily Telegraph saying: "I see no reason for any increase in the overall burden of taxation." Really? Well he could have fooled me.

And what of the Local Income Tax, which acording to briefings is not mentioned in Ming's speech. Is it still LibDem policy or not? Because again, for middle England, it would cost an average family an extra £2,000 a year.

It seems to me a great mistake for the LibDem leader to announce such definitive proposals three years out from an election. It merely gives Conservatives and Labour something to attack - and believe me, it's an opportunity that won't be missed. These proposals are so extreme that I don't think it's going too far to say that they are the most left wing tax proposals since Labour's 1983 "longest suicide note in history" manifesto. If the LibDems were purely going after Labour votes I could understand the strategy, but the fact remains that if the LibDems are to gain extra seats - and indeed retain the ones they already hold - it is Conservative voters they need. And there ain't many Tories who are going to swallow this tax manifesto, unless they want to emulate a Turkey voting for Christmas.

LibDems in their defence will try to say that it's all very well for Tories to criticise, but David Cameron won't commit himself to tax cuts. What they don't understand is the point I started with. Either you have an innate belief in low taxes or you don't. People know in their hearts that people on the right want to cut taxes and people on the left want to raise them. Conservatives do not need specific commitments yet. But we do need to make the case for lower taxes, an overall lower tax burden and explain why high taxes are threatening to ruin entrepreneurial spirit. Unwittingly, the LibDems have just presented us with an opportunity to do just that.


Inamicus said...

Iain, your own grumpiness on this issue, inspired by your own personal issues with the Lib Dems, is leading you to make some rather foolish statements -not least of which is the "most left wing tax proposals since 1983" claim. At a time when the Tories are ruling out tax cuts and the Lib Dems are promising a 2p reduction, the real reason for your mardiness is that this policy will seriously jeopardise the Cameron revival among the swing electorate.

And when are the Tories going to come up with some credible policies on council tax replacement? Until you come up with an alternative, any attacks you make on LIT are simply not credible. It's facile and irresponsible politics to be against the council tax and against LIT without saying what you'd do in government about it.

Chris Reid said...

Im sorry Iain, but your argument that the new Lib Dem ideas on taxation go against their political gene make-up is ridiculous.

By extension then there is no point in the Tories introducing policies to tackle homophobia or racism cos Tories are both of these things "in their political being" etc. etc. etc.

Iain Dale said...

Inamicus, if you knew me you'd know I am not a very grumpy person! I have no pesonal issues with the LibDems. Some of my best friends are...

Let me correct you. The Conservatives have not "ruled out" tax cuts, as you assert. And the LibDems are not promising a 2p reduction in tax. They are saying they will cut income tax by 2p but more than make up for it with a raft of other taxes.

I'll leave the LIT issue for others to judge. I see absolutely no point in rushing out an ill-thought out policy on council tax just for the sake of having a policy on it. There's plenty of time to draw up a detailed policy platform. The key for opposition parties at tjhis point in a parliament is not to have a policy on everything but to define a direction. David Cameron is doing that very successfully, as well you know.

Iain Dale said...

Chris, a very strange way of making an entirely fatuous point.

Jock Coats said...

It's not innate at all. I'm secretary of a party affiliated body that campaigns for shifting tax from incomes and so on and onto land values and numbers amongst its presidents/v-ps etc both Chris Huhne and Ed Davey.

Indeed as a Georgist I/we argue for the eventual abolition of income, profit, capital and transactions taxes.

Many of us would have preferred to see a much bolder step in that direction at this first opportunity.

dizzy said...

Good post Iain, I was going to write something this morning about the Lib Dems but got sidetracked with work. The first chance I got was a comment in your other post about blogs.

Anonymous said...

Chris you talk drivel.

Iain it is a very good point.

Its almost like asking Labour backbenchers to support Grammar Schools or privtisation of the NHS. It all comes from the foundations of your poltical beliefs.

There is no way on this Earth that at Lib Dem conference this year you are going to get that lot to approve something like lower taxes!

Valerie said...

If it's part of the soul, then are the Tories selling theirs?

And can we also assume that the Tories' much-touted greenness, when it finally makes it into some sort of policy, won't include any sort of tax proposals? How are you planning to get people to change their behaviour - maybe just by banning things?

Re. the CGT proposals - I think you're wrong to suggest it will penalise people who own 'a few shares.' My husband is one, and he's supremely unbothered by the CGT proposals. The average value investor isn't going to be affected.

It will affect employee stock options at a certain level - but then aren't they currently undertaxed?

Anonymous said...

Interestingly the Lib Dems are the only major party being consistent and honest on the overall tax level. In 1997 and 2001 they said it should rise to pay for services. Labour and the Tories said otherwise. Now, as we all know, the overall tax level *has* risen. So, Labour were lying, and given the Tories now seem disinclined to cut taxes - accepting the current levels - they've been misleading the population to.

Another interesting example of everybody denouncing Lib Dem policy, and then adopting it a couple of years later.

Tabman said...

Iain - you know you're getting things right when your opponents denounce them shrilly.

This is a classic Liberal approach to taxation:

- give people, especially low and middle-income earners more of their money back to chose how to spend it

- encourage them to spend it in more socially-responsible ways

Despite your best efforts to spin against it, I suspect this policy is going to be very popular especially when set against Squeaky Goerge's complete lack of anything useful to say on the issue.

And to all who believe that "raising taxes is deep in left-wing bones" - that may be so, but the Liberal Democrats, and this Liberal are not left wing and have no problem in countenancing tax cuts in this way.

Let's face it - you've been outflanked and it hurts LOL

Gregor said...

anon, that's arse.

The tories have been denouncing Labours tax rises for years. Only last year Howard was talking about cutting taxes by 4bn in his election manifesto, David Davis went further citing 20bn if I remember correctly in his leadership bid.

Cameron at present isn't misleading anyone, he's formulating policy and hedging his bets. GB is making such a hash of government spending that it's likely taxes will need to rise again in the next parliament, as it did in the early 80's. Commiting yourself to tax cuts when public services may be nearing financial meltdown due to Labour's incompetance would be disastrous.

Taxes may need to go up in order to smooth reform.

However implying that the tories are culpable for Labours rising taxes is stupid in the extreme.

RichardS said...

So, nothing about whether the Local Income Tax (LIT) proposals are still in or ditched.

This is disappointing, as LIT's devil is truly in the detail, and I for one cannot tell how it could work in either a practical or a fair way.

It is now June 2006. I, like many others, am now trying to work out my income for the tax year 2005/2006. This will not need to be in, nor the assessment paid, until January 31 2007.

So, will the council (for where I currently live, and use services, today) have to wait until 31/1/2007 until it gets some money from me?

Or would my rate be assessed on some other basis - ie past earnings or a finger-in-air assessment of current earnings?

If my income were to increase dramatically, then past earnings assessment would mean that I would be paying less than my "fair share" (by the LibDem's definition).

If my income were to decrease dramatically (as has, in fact, happened to me from time to time as business cycles change) then a past assessment of income could result in a financially crippling LIT liablity.

Finally, if the threshold for when people start to pay more is in fact the £40k (household income for 2 people) that CK admitted to during the interview at the last GE, then by my reckoning nearly 100% of people down my street would be paying more (it's just a typical street of modest housing, and very few "luxury" cars, in the SE).

Tabman said...

Iain - sorry, but your comment on CGT is wrong:

The proposal is to scrap Taper Relief, NOT the CGT personal allowance.

When you add the fact that the Higher Rate threshold is being raised significantly, and that most smaller investors will be around or below the current threshold, that means tax reductions not rises.

Bad luck old chum!

Iain Dale said...

Tabman, on one respect you are correct. I worded the CGT thing clumsily. I actually meant taper relief, but didn't make it clear and used the words Capital Gains Tax Allowances. I have now amended the text. However, that doesn't alter the fact that it will be middle income people who will be hit by this - how do I know this? Because I would be one of them.

Brent Parris said...

In your guts you know they're nuts.

Man in a shed said...

Yep another half baked Lib Dem proposal, this one rushed out to get the polls up before the Lib Dem conference.

They have no idea what they are doing. Wealth taxes will punish pensioners - who they hope to get on board with the local income tax and the green taxes will required that the environment continues to get damaged to fund the government.

Fortunately there is absolutely no chance, what so ever, that any of this mess will be enacted, as they well know. Irresponsibility is both strategy and tactics to the Lib Dems.

Tabman said...

Iain - I suspect you're not a "middle income" earner. I have a relatively modest income which I suspect is less than yours, yet I find that my household income is in the top 2% for the country (I wish I could find the link - there is a site where you can establish where in the scale you sit for the UK).

The majority of people in this country do not earn a lot of money in comparison to the "opinion formers", and for most people the most significant capital gain they ever make is on the sale of their main (only) dwelling which is of course exempt CGT.

Because we tend to compare ourselves to others who we see are "conseederably reecher than yow", its easy to miss how relatively wealthy one is.

Tabman said...

Man in a Shed - care to back up any of your "comments" (ie unsupported assertions)?

Lib Dem support is higher amongst 20/20 somethings; Pensioners tend to be set in their ways and are less likely to switch how they vote.

Iain Dale said...

Tabman, I can assure you I do qualify for that bracket. Not all Conservatives are multi millionaires, you know! Me included. I am sure I would not qualify for the top 2% or anywhere near that at the moment. But that is my choice. Things may change!

Jock Coats said...

Does anyone know what the mean and median household incomes are by the way?

Tabman said...

Jock: go here.

Top 10%> £46.3k p.a.

Median: £22.4k p.a.

RichardS said...

Kind of puts things into perspective.

Most people would probably expect that to get into the top 10% band you'd need to be a couple of doctors, bankers, solicitors, accountants, etc.

No - two mid-grade qualified teachers would do it, but I bet they don't feel like the top 10%.

Jock Coats said...

Oh that's a better site Tabman. I have for a while been working with figures from the annual report of HBAI - Households Below Average Incomes, which is particularly useful for working on housing costs. There the mean household income is just £36k and is, as the ASHE suggests well into the down curve of the bell in the seventh decile.

So if people in the seventh - tenth decile are hit they are in fact well into the wealthier part of the population.

Of course whether they *feel* wealthy and therefore accept that they are part of the population that should perhaps be paying more is another matter.

But that's why I hate income taxes so completely.

Gary Elsby said...

Iain, what is the direction that Cameron is taking you that is considered 'very succesful'?

Right of centreish compassionate conservatism, that may (or may not) lower taxes BUT raise the standard/quality and delivery of the services without cutting those services?? Leave EEP in 12 Months.

Compassionate socialism: Deny child poverty.Deny family poverty.
Minimum wage.High education-education-education and massive gains in health and lower unemployment and pensioner poverty.
Lead Europe.

Game set and match.


charlieboy said...

Hmmm. I suspect that it will play very well indeed. You know, Iain, just as well as I, that a whole heap of Tory supporters don't couch their desire for lower taxes in the 'liberalism/trickle-down' argument. They just like the fact that they'd get more money.

A party that can say "2p off income tax" may well convince many Tory voters who really don't give two shits about pretty much everything else. I suspect you think the same, deep down? Come on, you must be a bit worried?

Hughes Views said...

I wonder how Jock Coats reconciles his enthusiasm for the abolition of income tax and its replacement by a "land tax" with his support for the LibDems? Was it not they who wanted to replace a local property tax with a local income tax?

And speaking of allegedly good LibDem ideas, whatever happened to their 50p tax rate that, along with the above wheeze, was such a key part of their campaign last year?

What did TB call them? Something like 'street fighting chancers' - he was being far too polite....

malcolm said...

What planet do you live on Gary?Are you seriously suggesting that anything other than the minimum wage is being acheived?
By all means argue policies but being as ludicrously dishonest as Blair himself will get you nowhere.After nine years the game is up.

Jock Coats said...

I wonder how Jock Coats reconciles his enthusiasm for the abolition of income tax and its replacement by a "land tax" with his support for the LibDems? Was it not they who wanted to replace a local property tax with a local income tax?

I carry a little pair of nail scissors next to my membership card at all times...:)

But seriously, up until now there's not been much of a dilemma. The larger part of the local property tax by tax take, the Uniform Business Rate, our policy is to replace that with LVT.

If the group I am a member of has its way on the Tax Commission the likely tax on aviation may well be via a land value tax mechanism. And bit and pieces like that.

Obviously LIT is a "challenge" to that. It was adopted because of the egregious regressivity of the Council Tax and at a time when we did not have data to show we could reduce the burden on those most hurt by the Council Tax as easily with LVT as with Income Tax. It would be nice, from my perspective, if they could bring themselves to say "yes we think the Council Tax is rubbish, yes we thought LIT was the best way to right that wrong, but we've got something better." But let's face it, such are the scribblers that if that happened even if it were the best policy in the world they'd paint that as flip-floppy u-turning woolly thinking.

But I shalln't be leaving my scissors at home just yet. However, one doesn't have to be a "single taxer" to accept some measure of LVT. And it's better as a national tax than a local one. Sweden does their property/income national/local tax that way.

cymrumark said...

Ian as a good tThatcherite I would have thought you would support these proposals.

By my calculation if you earn £50k pa you will be £30 a week better off leaving you plenty of money to pay the extra "green" taxes...if you are on full time minimum wage approx £10k you will be £4 a week better off . You will then get hammered by green taxes.

Its making the least well off pay to combat global warming.

Given that Mrs T shifted the burden of tax from the highest earners to the lowest through massive increases in indirect taxation I would have thought you would love this :)

By the way what do the green taxes consist of ? Does anyone know.