Lib Dems propose lowest rate of income tax since last Liberal government

by Stephen Tall on July 12, 2007

Ming Campbell has today announced the Lib Dems would cut income tax by 4p in the pound, to 16p, the lowest rate of income tax since the 1916 Asquith government.

The full party press release – with further details of the proposals, and comments from both Ming and Lib Dem shadow Chancellor Vince Cable – is on Ming’s website here.

In his analysis of the announcement, the BBC’s Nick Assinder concludes (albeit, in typically tired left-right terms):

… what the Lib Dem policy offers is a genuine shift in the basis of taxation which will create many more winners than losers. The party is certainly not attempting to disguise the shift, instead making a virtue of the “hit the rich” proposals.

In doing so they are seeking to punch right and left – appealing to old Labour sensibilities and also to the aspirational Tory voter longing to see the promise of a clear cut in their tax bills.

The test of that may not just be in the ballot box at the next election, however. It may be to what extent the other parties decide to cannibalise the package.

And, via Jonathan Calder, we discover The Sun is rather impressed by Cable’s package:

The Liberal Democrats promised a 4p reduction in the basic rate of income tax today. And the cut would be paid for by hits on the super-rich and the biggest polluters.

The £19.2billion tax cut would reduce the rate to 16p – the lowest since 1916 when Britain’s last Liberal Prime Minister was in 10 Downing Street.

Party leader Sir Menzies Campbell said his proposed system was “fair, simple and green” and would benefit “the vast majority” of families.

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22 comments

Surprisingly sensible for the Lib Dems (even more amazingly not too economically illiberal). My main note of scepticism is in relation to green tax revenue replacing general revenue. If green taxes do what they are supposed to – ie discourage ‘bad’ behaviour, then revenue ought to fall from cars, flights etc. But of course other tax cuts are contigent on bad behaviour continuing in order to boost revenues.

by M on July 12, 2007 at 3:09 pm. Reply #

True to an extent, but green taxes can also have positive economic benefits such as reducing congestion and improving productivity.

by Neil on July 12, 2007 at 4:02 pm. Reply #

M,

There is a difference between punitive taxation on carbon emissions and for example, smoking. The theoretical purpose of a punitive tax on smoking is to stop people from smoking. When someone stops smoking you lose that income stream.

With green taxes are is about forcing the hand of the market. Rather than trying to stop people’s behaviour, it is trying to remove an outcome of that behaviour. So, for example, by switching air travel taxes to a tax on emissions rather than per flight or passenger there is an impetus for airlines to buy more efficient planes, as it enables them to offer cheaper flights. So the market has been forced to associate lower prices with environmental responsibility.

So there are two ways in which the revenue streams will not automatically decline alongside a decline in emissions:

1. If the decline in emissions is produced by increased efficiency (as outlined above), you can then increase taxation on lower levels of emissions so as to further force improvements in efficiency.

2. An increase in efficiency can enable sectors to grow above their current levels in an environmentally responsible manner, which would also create an increase in taxation revenue.

The other thing to note about green taxes is that they should punish all forms of pollution equally. So it isn’t about punishing ‘bad’ behaviours but about creating a genuine choice as to where people cut their emissions. This means people should be able to realise that they can cut significant amounts of emissions by fitting double glazing and proper loft insulation and that they don’t have to stop driving all the time.

by Kevin O'Connor on July 12, 2007 at 4:19 pm. Reply #

Kevin

I agree with what you say, that is the way green taxes should operate. But my point remains – if green taxes do what they are supposed to do – if airliners become more efficient and householders make better use of insulation so as to reduce their consumption on fuels – then the revenue the government gets declines. Of course it depends on the price elasticity of carbon emitting fuels.

by M on July 12, 2007 at 4:39 pm. Reply #

M,

Yes eventually. But my point is that the two strands of taxes (green and non-green) balance over time and over a munch longer time scale than people think.

So eventually, yes, you would have to regain some lost revenues from green taxes by increasing other tax streams, but this would be a long way down the line. A commom misconception is that a reverse flip as radical as the currently proposed one would be necessary a few years down the line when the green taxes have ‘served their purpose’ and everyone is living green lives. The reality is that the two streams would become natural counters to each other and no shock reversal would ever be necessary.

by Kevin O'Connor on July 12, 2007 at 4:55 pm. Reply #

What dissapoints me a bit is that the Lib Dems aren’t actually proposing to cut public spending, but merely to shift the focus of taxation. Even so, better than nothing.

by Q on July 12, 2007 at 6:00 pm. Reply #

I’d love to know since when has a joint income of £68 thousand meant a couple are “very wealthy”?

You will struggle to buy an ex-council flat in London on that.

Even worse why do we insist on writing all our policy papers in the language of the hard left?

I despair… a good piece of policy in the 4% cut totally obliterated under a load of neo-socialist ‘chip on shoulder’ rubbish.

by M on July 12, 2007 at 6:07 pm. Reply #

M – I’ve read the party’s press announcement, linked to in the posting. Your hyper-inflated criticism, that there’s “a load of neo-socialist ‘chip on shoulder’ rubbish”, bears no relationship to anything I read.

Please point me to the sentence in any of what Ming or Vince have said which remotely justifies your comment.

by Stephen Tall on July 12, 2007 at 6:15 pm. Reply #

“If green taxes do what they are supposed to – ie discourage ‘bad’ behaviour, then revenue ought to fall from cars, flights etc.”

This is an argument that’s often made, and I think the best response is that as green taxes start to work to change behaviour, you introduce new green taxes, or increase the old ones, to drive pollution further down still. This green tax escalator is necessary as our pollution (especially CO2) emissions are far too high for us to get them down to where they need to be in one swoop without massive economic dislocation. The battle with carbon is, realistically, one that’ll take decades, but that it’s one we have to start waging seriously now.

I don’t have any idea if that’s a politically popular message, but it has the virtue of being true, I think.

by Ranald on July 12, 2007 at 6:41 pm. Reply #

“I’d love to know since when has a joint income of £68 thousand meant a couple are “very wealthy”?”

It doesn’t, necessarily. It does mean that you have a very high income though.

And you could choose from thousands of houses in London on that income.

by Neil on July 12, 2007 at 7:39 pm. Reply #

I think we’re heading in the right direction. Certainly I think the 4p rate cut is a step forward (not to mention headling-grabbing!)

While I’m on the topic though, I would like to see from this party a policy to curb spiralling land values once and for all.

For example, a land value tax set by an independent committee with the aim of keeping land inflation, say, half a point below the CPI – which would have the advantage of making new homes more affordable without pricing existing residents out of theirs…

Heard the Tax Commission were considering some form of land taxation – did anything ever come of that?

by Joe Taylor on July 12, 2007 at 8:24 pm. Reply #

I like the new tax proposals, not convinced by the large increase in the inheritance tax threshold – surely you don’t need it anymore when you’re dead?

by Letterman on July 12, 2007 at 9:10 pm. Reply #

Letterman, you probably don’t need it when you’re dead, but it is not very considerate, that the tax authorities come and demand their cut while the family is mourning their loss. Usually they have in that situation more expenses than usually, anyway, and in worst cases they have just lost their breadwinner and a lot of income. No wonder, that it is called somewhere “the death tax”. Also it might prevent passing of a (small) business to a new generation, and therefore cause loss of jobs.

by R on July 12, 2007 at 10:55 pm. Reply #

Goodness me. Over the last five years you Lib Dems have been just about everywhere on tax. All over the place. Frozen tax. Lowered tax. LIT. Super-tax. Tax cuts. More tax cuts.

It doesn’t really matter much as Mr Cable will not get to make a budget unless he crosses the floor one way or the other.

Naturally, the sums won’t add up. And on the face of it this lot may play quite well in places you want to break through. But scupper some sitters.

Very strange. Is it a policy for one week only? That will slips away once the by-elections are over?

by Chris Paul on July 12, 2007 at 11:13 pm. Reply #

To Chris Paul: The BBC state that the IFS have signed the package off as adding up correctly. This is usually the case with LD tax proposals.

To Joe Taylor – the land tax proposals were launched a few weeks ago, by Ming, in a speech in Birmingham see http://www.libdemvoice.org/?s=community+land+auctions for more details. They will go to conference this autumn – see http://www.libdemvoice.org/brighton-rocks-conference-previewed-946.html#more-946.

by tim leunig on July 12, 2007 at 11:24 pm. Reply #

Tim – surely the Community Land Auction policy is less of a land tax and more of a marketisation of the planning system (which I support also).

Or am I reading it wrong…?

by Joe Taylor on July 12, 2007 at 11:30 pm. Reply #

Joe – the Tax Commission mark 2 was indeed charged by Federal Conference with producing “further policies for land taxation”. Unfortunately, it has failed to come up with anything other than fleshing out the detail on our long established call for Site Value Rating to replace the business rate. Hardly “further policies”!

The rationale for not developing a “Progressive Property Tax” (which is what TC-1 had got as far as coining for domestic LVT) was explained by the TC-2 chair to the Federal Policy Committee (and accepted!) as effectively too much too soon – i.e. we couldn’t possibly legislate for 2 major new taxes (LIT and LVT) in one Parliament! The fact that we plan to legislate for SVR in that same first Parliament and that SVR’s introduction requires the valuation of ALL land – including residential – makes such procrastination all the more bizarre.

The good news is that we will have an opportunity to endorse Community Land Auctions at Conference this autumn – already party policy and even supported by the Tories’ Michael Gove. CLAs at least capture a reasonable proportion of land value uplift on new build (albeit once only) and should go a long way to delivering more affordable homes. However, without LVT as the complementary policy, the scandal of 93,000 empty homes (LGA figures) in London alone will remain unaddressed and the opportunity to replace more taxes on jobs – including our declared ambition to lift all those on the NMW out of income tax will remain another of those many “longer term goals” we like to collect.

The frustration for LVT die-hards like me is that this Party is so close to securing real and meaningful tax cuts for low earners and so close to a sustainable shift to the only non-eroding source of resource based revenue – and yet still so far away from having the courage to take that one last blindingly obvious, eminently logical and generationally fair policy step…

You’re right though; 4p off income tax is certainly a step in the direction of economic liberation, social justice and a green tax switch. Such a shame we still seem shackled to LIT and a 3.5p backwards step the wrong bloody way! Not quite 1916 income tax levels overall yet – more’s the pity.

by Andrew Duffield on July 12, 2007 at 11:34 pm. Reply #

Now that is silly. 91 years in the political wilderness and we’ve only got as far as planning our first Parliament? 😉

Seriously though. LVT together with Community Land Auctions would slash the price of a starter home – which is both a noble objective and the right way to do it. Also it would surely be rewarded with the votes of exactly the sort of young, upwardly mobile voters we need to be attracting.

As one of those young people trying to get on the property ladder (and struggling to find somewhere for five times my income) it gets my vote…

by Joe Taylor on July 13, 2007 at 12:09 am. Reply #

Are there any detailed figures on these proposals (i.e. a list of policies, costings etc) and if so, where can I find them? In particular, I would like to know how the 4p tax cut would be funded (something a bit more precise than “tax the very wealthy / polluters”).

by RM on July 13, 2007 at 10:11 am. Reply #

No worries as the Lib Dems will never have to implement this as they have no chance of winning a GE,so what’s the point?

by jim on July 13, 2007 at 10:14 am. Reply #

There is a link to the full paper at the top of the page at http://www.libdems.org.uk/news/liberal-democrats-propose-4p-cut-in-income-tax.12898.html

by Jeremy Hargreaves on July 13, 2007 at 10:17 am. Reply #

From my analysis of the plans, the treatment of pension contributions from the so-called ‘super-rich’ (ie those on the upper tax rate – currently those on more than £40,485 pa) is going to be affected by about a quarter.

A pensions raid by another route?

by Jonathan on July 13, 2007 at 12:41 pm. Reply #

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