Axe the Tax: is the party softening its line on Local Income Tax?

by Stephen Tall on August 7, 2008

The Guardian publishes today what appears to be a well-briefed article suggesting the Lib Dems are thinking of deferring plans to scrap Council Tax in favour of a local income tax:

Liberal Democrats are planning to soften their support for a local income tax to replace the council tax, a key policy for at least three elections. Instead they are expected to propose reforms to adapt the council tax.

Vince Cable, the Liberal Democrat treasury spokesman, is backing the shift in stance. He believes the party should not look to introduce, or press any coalition partners to introduce, a local income tax for at least one parliament. The shift would make the proposal a medium-term goal and serve to lift media focus on the uncertain implications for individual taxpayers during an election campaign.

The local income tax plan, defended on the basis that it is fairer than council tax, has often left the party exposed at election times.

This would certainly be a significant move – Axe the Tax has been a signature campaign for Lib Dems up and down the country for years, insulating local council groups against the unpopularity of council tax rises, and striking a chord with many voters with its easy appeal that such taxes should be based on ability to pay.

It does, of course, have its internal critics. Sue Doughty, former Lib Dem MP (and current PPC) for Guildford, went on the record to blame the policy for her defeat in the 2005 general election. And of course the Land Value Taxers in the party have never been reconciled to the concept of a Local Income Tax.

If the Guardian report is true, it marks a third shift in Lib Dem thinking in recent months, alongside the commitment to cut the overall tax burden for the low-paid and middle classes, and the likely reforms of the party’s commitment to oppose tuition fees. Of course, a political party’s thinking can’t stand still, and it’s certainly arguable that the Lib Dems’ policy development stagnated during the ‘easy years’ post-Iraq and when the Tories were in the doldrums.

But will party members view these shifts as long overdue; or camel back-breaking straws?

UPDATE (11.20am): Vince has issued the following statement:

The Liberal Democrats remain committed to scrapping the unfair Council Tax and we remain committed to introducing a Local Income Tax, based on the ability to pay and this will be a manifesto commitment. I will be working with my colleagues on how these policies can be implemented most effectively.”

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Stephen and Alix, I accept the points you have both made, and appreciate your volunteer efforts to provide a place for informal discussion.
I would be happy to help in a research context.
On my criticism about the site often logjamming with internecine banter, I have to say that I read this particular thread with much satisfaction at the quality of discussion and took away some of the ideas to think about, eg Christine Melsom and Mouse.
Don’t think I belittle bloggers, on the contrary I read them widely; we have evolved from the days when Libdem News and the annual conference were the only ways to keep in touch. I don’t find either essential now.

by Elizabeth Patterson on August 8, 2008 at 1:08 pm. Reply #

From the Scotsman . . .

http://news.scotsman.com/scottishnationalparty/SNP–to-woo-Lib.4370840.jp

by Grammar Police on August 8, 2008 at 2:03 pm. Reply #

Stephen Tall

As you wrote that there had been a “shift in thinking”, I assumed that some kind of policy change had been announced.

But apparently all that’s happening is that the policy is under discussion. That’s a bit different, isn’t it? I would guess quite a lot of policy areas are under discussion.

As for repeating press speculation, how hard is it just to email the URL to Cowley Street for comment before writing your post?

by Clegg's Candid Friend on August 8, 2008 at 2:33 pm. Reply #

LDV – please disregard the above call for all stories to be pre-vetted by Cowley Street before publishing. Very silly.

LDV’s strength is its independence; its weakness is that sometimes it comes across as a little too uncritical. If the party fails to control its own message, it isn’t LDV’s job to cover for it.

by James Graham on August 8, 2008 at 2:36 pm. Reply #

I notice it’s always MPs or party officials that become irritated with LDV – and then only on days when a bad news story has appeared in the press and Stephen reports on it. This doesn’t happen to ordinary bloggers so shouldn’t happen to Stephen on LDV surely?

Lib Dem Blogs is as unofficial as LDV – don’t they have equal status in those terms?

by Jo on August 8, 2008 at 2:56 pm. Reply #

Jo: absolutely (although I’ve been fingerwagged for not being a good little party loyalist on my blog at times).

by James Graham on August 8, 2008 at 2:59 pm. Reply #

Mouse

Council Tax is payable by the occupier of a house. The amount is the same whether he/she owns it outright, has it on a mortgage, (possibly with negative equity), or “merely” rents it. If you happen to believe in a wealth tax, then one has to admit that Council Tax is a very haphazard way of achieving it.

Of course medians don’t tell us very much about the other parts of the income, (or housing), distribution. However, they do tell us more than averages. If everybody in any LA lived in the houses that were “appropriate” to their incomes, then those median incomes would be paying the median Council Tax bill. The is not true of average incomes and average Council Tax bills.

Actually, as you will know, we have looked at the whole range of incomes from the top to the bottom. The “unfairnesses” are not confined to top, bottom or middle. They are to be found at all ranges of income. However, to make such an analysis, you need to have a view of incomes distributions. Since no suitable data on these is published, we have prefered, wherever possible to concentrate on medians. However, there is published data on the incidence of poverty by region and this confirms where the unfairness tend to occur. In many regions, there are ample Band A houses for those “in poverty” to live in. In others, (notably the South East, the South West and the Eastern Regions), we run out of Band A houses before all those “in poverty” are accommodated.

Finally, there are some, (not very good), published estimates of the number of people within various income ranges in different regions. These also show the same pattern of unfairness as that shown by the median analysis.

We have exposed these other calculations to the various politicians that we have had meetings with.

by Christine Melsom, on August 8, 2008 at 3:00 pm. Reply #

James – same here – what’s the point in having bloggers if they are run around putting Lib Dem press releases on their blogs like good little girls and boys?!!!

by Jo on August 8, 2008 at 3:02 pm. Reply #

“LDV – please disregard the above call for all stories to be pre-vetted by Cowley Street before publishing. Very silly.”

I assume that refers to my comment, though of course I said nothing about stories being “vetted” by Cowley Street. (Obviously I have to add another question – how hard is it to read a post properly before jumping in with a response?)

What I suggested was that rather than posting a press report followed by comments prefaced with “if this is true … if this is true … if this is true”, and finally posting an update to the effect that “Vince Cable says it’s not true”, it might be better to get that comment first.

In that case, it might turn out – as with the David Davis story on the eve of the Haltemprice by election – that the story was a mistake, or it might turn out that it was still worth running, but with a caveat that it had been denied.

Nothing to do with Cowley Street “vetting” anything – just a bit of elementary common sense.

by Clegg's Candid Friend on August 8, 2008 at 4:20 pm. Reply #

What you are proposing is the very definition of vetting. And what would be the point? The official response to anything controversial which didn’t come out of the press office directly is to deny it, even if it is true.

If the press office denies something, that doesn’t make it untrue. Furthermore, as has already been pointed out about this specific example, Vince’s response is almost the dictionary definition of a non-denial denial. He must have been cribbing from David Milliband.

by James Graham on August 8, 2008 at 4:48 pm. Reply #

Isitfair

In almost every local authority area the vast majority of people are in one of three Council Tax bands. Be that A-C,B-D C-E, D-F, whatever.

As I said before, even for a property tax, Council tax isn’t very good.

I think most people would not accept that fairness is entirely related to % of gross income paid in Council Tax. If they did, then they would support local income tax? Other people don’t think income tax is entirely fair and I’m sure you are aware that many rich people pay far less in income tax as a % than many less well off people.

You really haven’t addressed the point as to why someone with an income of £15,000 who owns outright a £500,000 house should pay less council tax than someone with an income of £25,000 but who may be spending
£12,000 a year on a mortgage for a house which isn’t remotely worth £500,000.

What is more the person in the £500,000 house is likely to have lots of other assets (in goods, if not in cash)

Which is why it needs to be considered as part of the overall tax take. Of course median, means, income teirs area guide but no system can claim to entirely fair or be able to cope with each individual case,

Heres a few food for thought hypothetical outrageous ideas about council tax. (I not really advocating them)

1. Triple it and cut government grants to councils be a similar amount – then people will realise just how unfair it is.

It might even stop the “I pay £1500 council tax and all they do is empty the bins once a fortnight letters” people might get out and find out what was really going on.

2. Pay it direct to the Government and give Councils 4p from income tax instead, that way, the government will get the blame for council tax increases. That might stop increases, at least in election year.

3. Halve the rate for people who rent. Make it more of a wealth tax.

4. Stop some of the exemptions, vicars, empty houses (who pay just 50%)etc instead, charge empty houses 200% after 6 months – lets stop empty homes staying idle.

5. Scrap the single person discount – you can’t tell if a single person uses more or less council resources than a couple – the tax is meant to be on the propety not the individual – so why confuse the issue with the single person discount?

I repeat, I’m not advocating them, just hopefully providing food for thought.

by Mouse on August 8, 2008 at 5:29 pm. Reply #

Clegg’s Candid Friend writes “As you wrote that there had been a “shift in thinking”, I assumed that some kind of policy change had been announced.”

However, Stephen Tall wrote about “likely reforms of the party’s commitment to oppose tuition fees”. “Likely” means “change not yet announced”. Otherwise would not be likely.

by Steve on August 8, 2008 at 5:44 pm. Reply #

@Elizabeth

“I would be happy to help in a research context.”

Aha, we shall bear this in mind! We have it in writing 😀

Re: Lib Dem News, agreed, and it is quite a sobering thought that this is all the information that some (even perhaps most) party members get. I got my news and debate online from the start, and I am always struck when I get an all-party copy of Lib Dem News how tremendously out-of-date it is. If only we could set up a cheap information stream for slightly more techno-phobic members…

by Alix on August 8, 2008 at 7:47 pm. Reply #

Steve:
“However, Stephen Tall wrote about “likely reforms of the party’s commitment to oppose tuition fees”. “Likely” means “change not yet announced”. Otherwise would not be likely.”

Apparently it was only a likely shift in thinking? I admit it’s difficult to make coherent sense of the words that were actually used.

Then again, if people are going to claim that “vet” is synonymous with “comment on”, we may as well give up using words at all, and see how we get on with grunts and gestures…

by Clegg's Candid Friend on August 8, 2008 at 8:06 pm. Reply #

You might be interested in seeing the survey the LGA Lib Dem Group carried out after the 2005 General Election – showing that even among Conservative voters it was viewed more positively than negatively:
http://www.libdemgroup.lga.gov.uk/lga/aio/895212

by Councillor Rob Banks on August 11, 2008 at 4:33 pm. Reply #

All the LGA survey “proved” is that Council Tax is very unpopular and that ‘axing’ it was perceived as ‘a good thing’.

What our party has never tested is whether replacing Council Tax with extra income tax would be anything like as popular as simply having a fairer property tax.

A doorstep survey carried out by Lib Dem councillors in Newbury suggested that a fairer property tax would beat LIT in the popularity stakes by around 2:1 – not to mention generational equity and our alleged desire to shift the tax burden off productive work.

LIT? RIP!

by Andrew Duffield on August 11, 2008 at 10:13 pm. Reply #

So having ditched our 50p in the pound policy, our penny on income tax for education policy and now our Local Income Tax policy – is there anything left of our party that could be called “progressive”?

Is the victory of the Thatcherites in our midst complete?

by Andrew Turvey on August 11, 2008 at 11:44 pm. Reply #

Oranjepan Says:
7th August 2008 at 4:14 pm
I think some measure of variation in taxation levels for different localities is the epitome of fairness as it introduces accountability into the decision-making process and makes local politicians responsible for local conditions rather than assuming subsidies will artificially equalise differential levels of public/private service provision on a broad scale.

i agreee, personaly i favour the local income tax system becaus ei do think it would be fairer but councils should be able to make there own minds up, the central government should say you we’ll give u a certain amount but u need ot make the rest and they can decided how to do it!
eventually though central taxes should be phased out to a much lower levelso only actually pying for things like the army which are a central govt issue!but this certainly shouldn’t happen by increasing VAT’s as these are the ones that hit the poor the worset, thats why thatcher raised them when she cut higher rate taxes!

by Declan on August 11, 2008 at 11:47 pm. Reply #

Income tax is avoided by the rich and passed on to the poor. Any “progressivity” is entirely superficial, evidenced by 100 years of failure to close an ever widening wealth gap – though no doubt some will still claim this is because we haven’t taxed jobs enough!

I’m all in favour of “local choice in revenue raising” but, having approved such a laudable Liberal sentiment back in 1998 (‘Moving Ahead’), we’ve done bugger all to advance it. Our ‘choice’ for councils is the compulsory abandonment of domestic property tax and the forced adoption of a further impost on employment – as if the virtue of it being a ‘local’ levy is enough.

As property prices bottom out in about 18 month’s time, we should be calling for fiscal measures that will prevent the bubble inflating again and deliver generational equity, not more deadweight taxes on the productive economy.

by Andrew Duffield on August 12, 2008 at 8:47 am. Reply #

we could just try and close loopholes (there are meant to be quite alot, sadly i dnt no them,haha), and get the swiss etc to cooperate with us over tax dodgers,which they’ve started doing?

by Declan on August 12, 2008 at 9:35 am. Reply #

also im sure the definition of the word progressive does not say anything about raising taxes Andrew Turvey?

by Declan on August 12, 2008 at 9:37 am. Reply #

On the contrary, Declan, being a progressive has a huge amount to do with believing in a progressive tax system – one where the more you earn, the more you pay as a proportion of your income.

My point was about the progressiveness (or regressiveness) of the tax system – not the total amount of tax raised. Replacing Council Tax with a LIT will not affect the latter.

by Andrew Turvey on August 12, 2008 at 10:49 pm. Reply #

Andrew Turvey

I suspect you need to explain to Declan what “progressive taxation” means.

by Clegg's Candid Friend on August 12, 2008 at 10:57 pm. Reply #

an interesting thread whatever the original facts of the case

1)however those who would advocate LIT in the first term need to be clear that it is actually implementable in that timescale – Lyons records the professional view that it is not. This may be wrong but no-one has addressed this point. We are hoping that the Tory’s bubble will burst under scrutiny – we need to be sure that we can stand up to similar scrutiny ourselves, if we are potential players for government (or a share of) at the next election

2) those that are concerned about promoting localism need to be clear about whether than requires a greater share of taxation to be raised at local level – if it does, and most think so, then the policy at the last election of reducing the local tax take to soften the impact of introducing LIT need to acknowledge the policy conflict inherent in this. Once we do that – what is our USP on this core issue from the Con rhetoric?

3) if LIT raises less than council tax then this reduces the scope for reduction in other taxes which we are also promising, and which would be focused on the lower paid.

4) if the argument is about fairness then there needs to be an analysis that looks at all of tax and spend not just LIT – the overall shift to lower the tax burden and to focus the reduction on the lower paid provided this is not financed by reductions in spending on these groups which Nick has announced goes some way to addressing some of the inherent unfairness of our tax system. We also need to consider what can be achieved more quickly i.e. in the first term through reform of council tax benefit. There is also the issue of inter-generational equity – do we want to shift the tax burden in favour of the elderly (regardless of their wealth) and against the young who may be struggling in the housing / jobs market to bring up a family? Given the intergenerational (in) equity issues arising from decades of housing inflation , notwithstanding the current credit crunch this would seem perverse. More pragmatically, at the last election we had very expensive pledges to help the elderly (free home care and LIT) but in practice they are not floating voters!

5) Most countries have a property tax of some kind at local level – and there are good reasons for this – property prices / values are driven by local circumstances, (location, location, location) and it is relatively easy to collect by local government. One of our key priorities is to have more power at local level, and one of our key USPs from the others who now pretend the same thing is to argue that that wont’ decentralise financially. This is likely to be achievable through some form of LIT AND a local property tax in the medium term – but there are some tough choices to be made about how to get there. It is not for nothing that Mrs Thatcher was brought down by the issue of local taxation.

For all these reasons we need to think this issue through.

by realworld on August 13, 2008 at 12:08 am. Reply #

“1)however those who would advocate LIT in the first term need to be clear that it is actually implementable in that timescale – Lyons records the professional view that it is not.”

I’d have thought it was. The Council tax took 2 years to introduce from Heseltine announcing that the Poll Tax would go (April 91) to first bills (April 93).

In that time all properties needed to be valued whereas AFAICS all the information needed to operate LIT (ie addresses and income) already exist.

I’d have thought therefore that introduction within four years should be achievable.

by Hywel Morgan on August 13, 2008 at 1:17 am. Reply #

i was questioning progressive taxes Andrew Turvey i understand what that means….but in yor comment u simply said progressive on its own, i was simply asking u whether you beleieve there is such a thing as a progressive party who whishes to cut taxes as it seemed in yor comment u didnt agree with this

by Declan on August 13, 2008 at 9:40 am. Reply #

i meant “i wasnt questioning”, oops!

by Declan on August 13, 2008 at 9:42 am. Reply #

This rubbish about the practicalities of implementing LIT in the first term is madness.

Is Vince going to be sticking to this line when enough people really understand that it is property owners who gain from their income tax spending.

This quick video makes it clear enough: http://fiscalreform.blogspot.com/2008/07/ricardos-law-great-tax-clawback-scam.html

The practical and implementable approach is to fix the bugs in Council Tax:
– It should be the property owner, not the tenant that pays
– There should be more bands added to the top
– All bands should be proportional to the land value, not the property value (no one should be penalised for improving their home)
– The tax should be payable irrespective of how many people are in the house (a tricky one for the single pensioner in a 4 bed house)

The problem with implementation is because we’re not looking at where our tax policy should be. The land is a “common”. We should each be entitled to a dividend – the surplus value – from revenue raised by taxing it. The same applies to the global commons of taxing the atmosphere.

Thankfully, we’ll be getting an introduction to Systemic Fiscal Reform at the ALTER event at conference, and Vince will be responding to some truly innovative and bold tax proposals.

by Neale Upstone on August 13, 2008 at 12:25 pm. Reply #

Neale Upstone

If a tax on property owner is introduced, site value is the best tax base in all ways. Is there any particular need to band site values? I would much rather just bury all the anamolies of Concil Tax.

There is no practical way in which site value taxes can raise all the money which local government now spends. Raising tax centrally and distributing the proceeds by formula to local government to make up the difference just obscures whether local or central government is responsible. The central tax which can best be transformed into an effective local tax is income tax on income from employment (including self-employment and pensions). If we believe in responsible local authorities, we need to transfer all or much of that tax to local authorities.

How we time the transfer of much of income tax to the local authorities so as to fit in with reforming property taxes is quite tricky: I can see it might take two Parliaments.

The first problem is that equalisation between the authorities needs to be sorted out. The only fair base for equalisation of needs to spend is what it costs a fairly efficient authority to deliver each service. This is proven to be practicable. However, the present system does not work like that; it is much less fair. Equalisation of resources is now based on the yield from the present local taxes. We need to plan for transition to the new, better forms of local revenue.

The second problem is setting up the new taxes so that they work smoothly. That can be done partly in parallel with the sorting out of equalisation.

When we have sorted out the first two aspects, we have to enable each local authority to make a reasonably smooth transition from the old to the new. That is practical, but is the most complex of all the problems.

Tackling all this competently will probably take more than five years. But LibDem changes are meant to be purposeful, coherent and built to last. They take longer than Tory and Labour “initiatives”, and will last much longer.

But the way, you present the general cases for tax on the “commons” is a bit misleading. Taxing site values can and should act as a cogestion tax changing economic behaviour, but in uncongested areas an attraction of site value tax is that it should have relatively slight effects on activity in the market for land (unless it is raised very high). Tax on say CO2 emissions is aimed quite specifically at charging out to the polluters the full economic cost of their activities: the parallel would be a pure congestion charge on land value. The “dividend” concept arose from thinking in terms of site value tax in uncongested areas. Taxes intended to make economic activites bear their full costs are simply better taxes in that they may impose on the economy not near-zero costs, but positive benefits.

by David Heigham on August 13, 2008 at 4:03 pm. Reply #

All taxes on wealth generation (including income tax and profits tax) are inflationary and ‘welfare negative’, i.e. they end up making us all poorer. Does this Party really think it is ‘progressive’ to tax earnings, while leaving wealth accumulation untaxed? Because that’s what happens if you scrap Council Tax – for all its faults the only property tax we’ve got – and add to income tax, albeit locally. LIT cancels out all the good redistributive effects of the rest of our tax reform package.

LVT is the most progressive and the most green tax of all, precisely because it allows us to lift taxes on earnings – starting by lifting those on low incomes out of tax altogether. The solution lies in merging property taxes into the income tax system, as is done in Sweden. LIT supporters often say “look at Sweden” but omit to mention that their “income tax” includes a substantial “wealth” element, which is overwhelmingly property.

So we actually can please everyone in this Party by introducing a national LVT, merging it into Income Tax, scrapping Council Tax and allowing councils to have some of it all! But by saying “not yet” to domestic LVT (we agreed to SVR in place of Business Rates and other LVT ‘long term’) we put a future Lib Dem Government in a bad place – as potentially the only country in the developed world without a domestic property tax. Noty somewhere I think the successors to Lloyd George want to be…..

Finally, for goodness sake lets not pretend we can do without some element of central government grant. Or that to have LIT we need set up hundreds of different local tax administrations. Precepting works fine.

by Tony Vickers on August 13, 2008 at 5:51 pm. Reply #

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