When it comes to the Budget next week, we will vote for the budget. But if there are measures in the Finance Bill where we could improve fairness and make for a fairer Britain, then we will come forward with amendments to do that, because that’s where we make the difference, as we will in the spending review which will follow in the months ahead.

This is very welcome, but what should this amendment look like? I have already been thinking about an income tax rise to replace the VAT rise, but what else might the Liberal Democrats propose? Answers in the comments below.

It is notable that Simon is leading on this, not just another backbencher – and strikingly, not anyone from the Labour benches. Isn’t it time they started making more constructive noises?

• What is the timescale? 5 years, so this is a clear Conservative victory. I am deeply concerned about this, possibly more than anything else, because I think it will damage growth over the next half decade (possibly plunging us back into recession) and thus prolong, not minimise, the pain.
• What is the proportion of cuts to tax rises? I hear differing figures, but I think the most accurate figure is 77% cuts to 23% tax rises. That is a slight reduction on the Tories’ 80:20, but is closer to that than the Lib Dem figure of 71:29 (or 2.5:1 depending on how you want to look at it). Of course, converting it all to percentages highlights quite how close all three parties plans were (Labour were committed to 67:33). To an extent therefore, I will concede that much of the battle had already been lost before the election. But there are tax rises and then there are tax rises. Which brings me to…
• What kind of tax rises? Leaving aside the Capital Gains Tax tweak, which only raises £1 bn (half the amount to be raised in the Lib Dem plan), the main hit is on VAT, both the higher and lower rates, to 20% and 6% respectively. There is no escaping from the fact that this is a total defeat for the Lib Dems in coalition. There are no new wealth taxes, despite the fact that large amounts of uneconomically productive wealth is locked up in land across the country, which in turn ensures that rent rises are artificially high (a problem exacerbated by the Housing Benefit cap) and contributes to the housing shortage. The Social Liberal Forum can point to one small victory however: the increase in personal allowance will not be passed onto people paying the higher rate of tax, something which we argued for at both the special conference and in our letter to Nick Clegg and Danny Alexander.
• Will it be egalitarian? Despite the government’s protestations, the broad consensus is that the overall package will lead to greater inequality, not less. Indeed, the debacle over whether the package is fair on the poor or not has made our case superbly about the need for the Office of Budget Responsibility to be both genuinely independent (ideally appointed by parliament directly) and have inequality written into its terms of reference. If it had been, I genuinely believe that it would have lead to a fairer budget: George Osborne to his credit understands the need for transparency in fiscal policy and has taken great strides to improve this. Ensuring that they can’t spin about inequality is a very crucial part of the jigsaw puzzle.
• Will we end up with more or less means testing? Superficially, this is a victory as the scope of means testing was not increased. With that said, the number of people facing marginal rates of tax of around 90% actually increased – despite David Cameron’s highflown rhetoric about ending this last year. If proof were ever needed of how a smaller state can lead to less freedom, this is it.
• Will this budget lead to a fairer, greener economy? The short answer to this is: wait and see. There was very little in the budget to give us hope on this score, apart from the commitment not to cut any further capital spend. We must now look to the Spending Review to see whether all this pain will lead for a more sustainable, brighter future. Much of what is in the coalition agreement is hopeful on this score, and much of it will be lead primarily by Liberal Democrat Cabinet members: Vince Cable and Chris Huhne. But it involves convincing the Treasury that these plans are worth proper investment, and sadly the Treasury have not exactly filled me with confidence this week.
• What will be in the budget to prevent a “double dip” recession? Again, we will have to wait and see on this score. The commitment to capital investment was at least something, as was the very small amount of help to entrepreneurs. But to suggest that taking such a large amount of money out of the economy during such a short timescale will have no impact on the recovery, is fantasy economics. Osborne and Alexander are taking a big gamble here. Only one thing is clear: if we do go back into recession, it will be very clear who is to blame.

Overall, then, I’m not convinced this is a good budget, or even a necessary one. If I were a Lib Dem MP would I oppose it? I would certainly be thinking very hard about how I might be able to improve it via the Finance Bill.

But where do we go from here: any thoughts?

So the issue with the rumours and hints that have been flying around over the past few days is not that the party isn’t winning the argument, but that the budget that seems to be emerging represents a total abandonment of Lib Dem policy. Will it be all that bad however? The key question will be: will we be able to clearly demonstrate that this budget contains elements within it that a pure Tory budget would not?

How do we assess that however? Here are a few ideas:

• What is the timescale? If George Osborne announces a clear intention to clear the structural deficit over the lifetime of this parliament, that is a definite Tory victory. The Lib Dems’ argument was always for something closer to halving the deficit over five years.
• What is the proportion of cuts to tax rises? Again, the Tories were quite clear on this: £4 cuts for every £1 tax rise. Labour went into the election calling for £2 cuts for every £1 in extra taxes. The Lib Dems, it is fair to say, hedged it, but did include a clear commitment to raise taxes if spending cuts alone would lead to greater unfairness. It is hard to conceive how 80% cuts could possibly pass this fairness test – especially since the government appears to be working towards an even greater deficit reduction than even the Tories were pledging to do during the election.
• What kind of tax rises? Of the Lib Dem’s main tax pledges, only the banking levy, the plane levy and the harmonisation of Capital Gains Tax survived the coalition talks. The hints are that the banking levy announced tomorrow will raise somewhere between the Tory plan for £1bn and the Lib Dem plan for £5bn. CGT harmonisation, again if the rumours are true, looks as if it will be neutered. VAT is being talked about, although in recent days the speculation on this has died down (personally, regardless of how regressive it would be, I can’t conceive of them raising this up to 20% in one step – it would be both inflationary and really hit the high street). There are heavy rumours tonight of an early start to the plan to raise personal allowance, but will this be targeted at people on low incomes or result in tax cuts for the wealthy as well? Clearly the test here is: will the tax plans take more from the wealthy than the poor overall?
• Will it be egalitarian? The government is committed by statute to assess all its policies on the basis of socio-economic inequality. The Lib Dems supported this in the last parliament (the Equality Act 2010), but thus far the coalition has been entirely silent about how it intends to make this a reality. Instead, the emphasis has been on social mobility, social opportunity and poverty. Despite this, the question is, will the budget contain within it a clear set of policy tools to ensure that such talk carries weight, or will we just get the rhetoric? Indeed, rhetoric aside, in terms of practical measures thus far, the coalition seems to have been going out of its way to scrap youth employment schemes. How do we ensure that all this doesn’t lead to another generation left on the scrapheap (the bill for which future generations will end up paying)?
• Will we end up with more or less means testing? Child benefit is frequently cited by journalists as a benefit likely to face the act in this budget, albeit in the form of means testing rather than abolition. Yet increasing means testing is a highly problematic measure. Fundamentally, it increases the marginal rate of tax (i.e. for every extra pound earned, the proportion that is clawed back in taxes and a loss in benefits), something which both the Lib Dems and Tories were at pains to criticise in opposition. They must also be applied for, meaning that more people will end up not claiming for the benefits they are entitled to. Reducing the taper for benefits that are already means tested, such as the Child Tax Credit, is less problematic but they are relatively inexpensive already and thus won’t save an awful lot of money. But increasing the scope of means testing will be counter-productive in the long run.
• Will this budget lead to a fairer, greener economy? The Lib Dem plan was not just about economic recovery; it was about ensuring that the new economy was significantly different to the old one. Our vision was all about investing in green technology, reduced dependence on the financial sector and increasing social mobility. During the run up to budget day, it has been notable how lacking government statements have been in vision. Nick Clegg’s email this evening was pitching somewhere between Thatcher’s “there is no alternative” and Churchill’s “I have nothing to offer but blood, toil, tears and sweat.” The much promised pain would at least be worth it if, at the end of all this, we had something tangibly different to look forward to.
• What will be in the budget to prevent a “double dip” recession? It is hard to see how taking the amount of money out of the economy that is being proposed can be done without plunging the UK’s fragile economy back into recession. This would be disastrous. It would add to the national benefits bill and reduce the tax intake and thus make reducing the deficit more difficult, not less. So the final crucial question will be: what will George Osborne announce which will ensure that does not happen?

Those are my benchmarks – what do you think of them? And should we be considering anything else when evaluating the budget tomorrow?

As the implications of what it appears that the coalition is about to do in the upcoming budget sinks in, I have to admit to growing increasingly concerned. No-one – outside of the Labour leadership contest anyway – denies that the structural deficit needs to be tackled or that we don’t face some unpleasant spending cuts over the next few years. But I’m mystified by the economic strategy behind what the government apparently has planned.

If the government does have a game plan, thus far it has not been spelled out. Nick Clegg’s speech on Monday was remarkably void of much of an argument, resting as it did on two points:

1. There is no alternative: “to do anything else would not only be irresponsible, it would be a betrayal of our progressive values”.

2. It is a matter of intergenerational equity: “There is nothing progressive about condemning ourselves and our children to decades of debt, higher interest rates, fewer jobs.”

Nick Clegg and company keep emphasising how shocked they were by the state of the country’s finances, but thus far – despite all the welcome transparency – they have offered nothing to explain why they were quite as shocked as they were. The report of the Office of Budget Responsibility was mixed: it suggested that the structural deficit was worse than we’d thought but that public spending was actually under better control. Clegg himself keeps talking about this meeting he had with Mervyn King and how it made him see the light; it is almost as if he has come back from Mount Sinai carrying tablets of stone. But Mervyn King is just one man, and not one whose prognostications in the past have proven to be infallible. What is King saying in private that he can’t tell us in public? Why wasn’t it being said before the election? And how has it shattered Clegg’s and Cable’s own views of economic policy so irrevocably? I always knew that both of them were fiscally conservative, but this is radical neo-liberalism. It is the most spectacular policy volte-face I’ve ever seen.

More to the point, why does no-one else in the world appear to be pursuing a similar strategy. The UK is not in the mess that Greece is in, yet the coalition government is behaving as if it is. We know why the Tories want to do this: they’re Tories. I’ve yet to hear a single, coherent Liberal Democrat argument for why we should be going along with this.

The thing is, we do have choices here; lots of them. The government have made two fundamental choices which, on the face of it, contradict the advice of a very large number of economists and thus urgently need to be explained. Firstly, they are seeking to tackle the whole structural deficit within five years (something which the Lib Dems denounced during the election). Secondly, they are seeking to do this overwhelmingly by cutting rather than taxing (something which, to be brutally frank, the Lib Dems fudged during the election). I can see nothing in the OBR figures which suggest that such a strategy would be madness; quite the opposite. If the structural deficit is larger than we imagined, then surely there is a case for tackling it over the longer period of time, and an even greater scope for tax increases? To do otherwise would just risk damaging the economy, surely?

It is one thing to cut £6 billion this year: frankly I was pretty unfazed by that. But the numbers the government has started talking about really will risk – if not guarantee – a double dip recession. Withdraw the amount of money from the economy that we are talking about, and it is hard to see how the outcome will be anything other than negative growth. It actually looks as if, despite all the reassurances a few weeks ago, the government’s agenda is to actually engineer a new recession, seeing it as a necessary bit of pain with a view to long term benefits.

The last time that was done was the early 80s, under Thatcher. The result? In some parts of the country a whole generation was left on the scrapheap. Far from tackling the structural deficit, we’re still paying for it. That shocking welfare bill that Frank Field and Iain Duncan Smith have been given the task of slashing? A large proportion of it is due to the government plonking a large proportion of ex-miners onto incapacity benefit. The price has not just been financial; lives were shorn of value overnight; communities were destroyed; the following generation grew up with no hope and no aspiration. Social mobility fell. This is what shock doctrine economics does to a country and even the Tories pledged we would never return to it.

This brings into question the claims that such a hard and fast approach is progressive from an intergenerational perspective, and also causes us to consider some other worrying trends emerging from the government. Leaving aside David Willetts’ extraordinary views that higher education is an intolerable burden on the taxpayer, we have the fact that one of the main things the government has slashed over the past month has been youth employment schemes. Clegg’s argument that it is progressive to cut now to ensure that future generations don’t end up paying for our mistakes are only actually convincing if the future of those generations are not being curtailed by the same economic policies. Deny a graduate or teenager a chance of either employment or training now, and it won’t matter to them how high taxes are in the future because their own earning potential will go through the floor.

All of this flatly contradicts Clegg’s emphasis on social mobility, or does it? Because when he talks about social mobility, as he did on Thursday, Clegg’s emphasis is all on children. We can all agree that the most effective time in a person’s life to invest in is their early years, but this truism appears to have fallen victim to doctrinal reductionism. Simply put, it makes no sense whatsoever to invest in early years and schools while having nothing to offer people once they hit 16. What is the value in the government creating the most aspirational dole queue in history?

All of this adds up to an emerging picture of futures of the current crop of teenagers and young adults being sacrificed in the name of their younger and older generations. You’ve got to ask what they’ve done to deserve it? Equally, you’ve got to wonder if Clegg and Cameron would be quite as ready to do this if Antonio, Alberto, Miguel, Nancy and Arthur were a little older.

No-one else seems to be taking as much of a hit. Wealth taxes have been almost entirely ruled out, despite the fact that taxes on property values (or, better yet, land values) would have the least negative economic impact. And yet, far from being an economic burden, it is the 14-22 generation that we will largely depend on to make our economic recovery over the next decade a swift one. I am completely mystified; it makes no sense to me whatsoever. It seems to have been concocted by a bunch of people more concerned with sounding tough and being seen to make grown up decisions than actually steering the country down a fair and economically sustainable path. In short, it screams of groupthink; I pray that I’m wrong.

Late last week I spoke to someone on the “inside” and painted them a rosy picture. I speculated that all this doom and gloom that had been coming out of the Treasury and Downing Street over the past fortnight was a shadow play designed to placate the Tory headbangers and that what would emerge would be something surprisingly progressive and far-sighted; people like me all breathe a collective sigh of relief.

I still like to think that is a distinct possibility, but my source didn’t seem to find my theory anything more than charmingly off the ball. If they would at least offer us an actual economic argument, it would be something. Instead we just get echoes of Thatcher’s There Is No Alternative.

Schools is a clear priority, although local, government, housing and tax also score quite highly. Prateek Buch advises against making any decisions before budget day and while there is certainly merit in that, it certainly seems that there is already a lot to go on regarding education policy.

Any suggestions of specific wording?

The deadline for autumn conference motions is looming (30 June to be precise), so we don’t have much time.  But what should the Social Liberal Forum be championing to get onto the agenda?  Here are some ideas:

• Secondary education – academies and free schools in particular – appears to be a simmering issue (see John Howson’s article on the SLF website).  Should we push for ensuring that the academies system is brought under greater local control and scrutiny?  What else?
• Higher education: tuitions fees is clearly a big issue.  Is there a way of squaring the circle? Move towards a graduate tax?
• Wealth taxation: the Tories struck anything even vaguely resembling a wealth tax from the coalition agreement.  This is an area in which the Lib Dems and Tories have a clear difference.  Is now the time to set out a strategy to make it clear we are a distinctive party?
• The Office of Budget Responsibility: as we spelt out in the SLF letter to Nick Clegg and Danny Alexander, the OBR doesn’t currently have monitoring socio-economic inequality written into its terms of reference, despite the Treasury having to consider this under the Equality Act 2010. What’s more, despite being formally independent, its members are directly appointed by the Chancellor.  Shouldn’t it be subject to a confirmation hearing by the Treasury select committee (or, better yet, appointed by parliament in the same way that the Electoral Commission is)?

These are just a handful of ideas from off the top of my head.  Feedback welcome on these – as of course are other ideas.  Add your comments below.

The FT reports that Lord Oakeshott, Malcolm Bruce and new Lib Dem Deputy Leader Simon Hughes also advising Nick Clegg not to capitulate.

Simon Hughes told the FT that he was “trusting [the chancellor and chief secretary] will find a way of squaring the circle that colleagues in my party can sign up to and that will send a message to colleagues around the edges that they can’t suddenly change the game after the rules have been agreed”.

Lord Oakeshott, Lib Dem Treasury spokesman in the Lords, urged Mr Osborne to turn a deaf ear to the “great deal of noise” from right-wing MPs, who were “trying to chip away at this agreed programme”.

“Taper relief, as Vince Cable [the Lib Dem business secretary] has made clear, is an open invitation to avoidance. It is complicated and just does not work,” he said in the House of Lords debate on the Queens Speech last week.

Finally Malcolm Bruce told the FT that he would “share the unease if they backed off too much and weren’t able to raise the income tax threshold.”

Meanwhile, our own letter has been reported prominently in the Guardian today.

To: Nick Clegg, Danny Alexander
cc. Simon Hughes

Dear Nick and Danny,

Next week, the coalition government is to produce its emergency budget. This more than anything else will determine the direction of economic policy over the next few years. It is therefore crucial that it spells out an agenda not only for our straitened financial circumstances but for fairness as well.

While the Liberal Democrats made a great many concessions in the coalition agreement on economic policy, we have welcomed Nick’s insistence that the government will seek to maximise social mobility and social opportunity. Thus far however, details on how precisely this will be done have been lacking. Indeed, amongst the first swathe of cuts announced last month was a number of youth employment schemes. David Willetts’ unfortunate comment last week about higher education being a “burden on the taxpayer” suggests that not only will Liberal Democrat ministers have to continue to remind their Conservative colleagues of the importance of social mobility, but they will have to make the economic case for building a learning economy as well.

For Liberal Democrats of course, social mobility can never be enough. The decision of the Special Conference last month to back the amendment calling on Liberal Democrats in government to ensure that wealth and income inequality does not widen during this Parliament was near unanimous and we were strongly encouraged by your support of it. We also note that in the run up to the election, Nick publicly lent his support for a “Fairness Test” – an inequality impact assessment of any tax rises or spending cuts necessary to tackle the deficit¹. But how is this to work in practice? We note with concern that neither the full coalition agreement nor the terms of reference set out for the new Office of Budget Responsibility makes any mention of the Equality Act 2010 or the statutory obligation within it for all public bodies – including the Treasury – to have due regard to reducing socio-economic inequalities. How will inequality be monitored in practice?

Taxation will inevitably continue to be an area of tension within the coalition. We accept that in drawing up the coalition agreement, a number of core Liberal Democrat policies had to be put to one side. Hopefully we can all agree however that the party must never compromise on the principle of making the tax system fairer. In this respect, we have two main concerns. The Liberal Democrats’ commitment to raise personal allowance was always part of a wider, redistributive package. While the commitment to raising personal allowance has been kept, that overall package has been picked apart by the coalition agreement. Not only does this raise serious questions about how the new policy will be paid for, it means that the policy as it stands will mainly benefit people on above average incomes. What will you do to ensure that this does not happen? At the very least, will you commit to reducing the threshold for the 40p rate of income tax by the same amount that personal allowance is raised? This will not only make the policy more affordable, it will ensure that the tax cuts are aimed solely at people on low and middle incomes.

Secondly, it is crucial that the coalition sticks to the agreement on harmonising capital gains tax rates with income tax. Much of the hysteria about this measure from Conservative MPs and within the right wing press has painted a misleading picture regarding both how capital gains tax works in practice and who pays it. We are deeply concerned that this misrepresentation has not only been allowed to continue but that several government ministers appear to have suggested that the proposals will be watered down in order to quell a backbench Tory rebellion.

This will have severe long term consequences and could bring into question the legitimacy of the coalition itself. If the coalition falters at such an early stage on such a key part of the agreement, it will look dangerously weak and will only embolden those who are determined to see it collapse. The Liberal Democrats in government will look especially wounded. We would strongly urge you to not compromise any further on this issue. At the very least it must not be contemplated without revisiting the Liberal Democrats’ other manifesto commitments for a mansions tax and restricting tax relief on pensions to the basic rate of income tax.

Overall, we believe it is crucial that the burden of deficit reduction does not fall disproportionately on spending cuts. The Liberal Democrats did not sign up to the Conservative formula of cutting £4 for every £1 raised in additional revenue and it would be impossible to pursue such a policy without adversely hurting the most vulnerable in society. The people with the broadest shoulders must take the greatest burden and while the coalition agreement may have failed to spell out how exactly that should be done, we trust that you will continue to press your Conservative colleagues in government on how best this might be achieved.

With this in mind, it seems incomprehensible that we could be contemplating a rise in VAT at this stage. As the Liberal Democrats pointed out before the election, a VAT rise to 20% would cost every person in the country on average £389, disproportionately hurting the least well off who would be least able to afford it. It would also be inflationary at a time when the RPI is already worryingly high.

Ultimately, however, the most crucial tool for reducing the deficit is not cuts or taxation but growth. The economic case for drastically reducing the size of the state to stimulate growth simply has not been made; we are too reliant on global markets and injudicious cuts risk damaging our competitiveness. During the election we repeatedly questioned Conservative dogma on the economy. Much of that dogma is now being rolled out to the media and in government papers. We trust that you will be similarly bold in asserting scepticism about that approach.

Yours sincerely,

David Hall-Matthews
Peter Kunzmann
James Graham
on behalf of the Social Liberal Forum

1. “I am more than happy to sign up to a Fairness Test, so that closing the gap doesn’t bear down on those who already have too little.” Nick Clegg, April 2010. Source: http://www.equalitytrust.org.uk/fairnesstest

Anyone who is a member of the Social Liberal Forum is eligible to stand and membership of the SLF is free to all members of the Liberal Democrats. Register as a member on our membership page (if you aren’t sure if you have already joined, you might as well sign up to make sure we haven’t missed you). The deadline for nominations and new membership registrations (if you want to have a vote) is Sunday 25 July.

This is an exciting and challenging time for the Liberal Democrats and we expect the Social Liberal Forum to play a pivotal role during this period. There has never been a better or more crucial time to get involved. So welcome – and good luck!

The Liberal Democrat's campaigned explicitly against a VAT increase in the 2010 General Election.

A couple of weeks ago I wrote about the regressive alliance seeking to undermine the new coalition government at every turn.  If that seemed vague and abstract then, it certainly doesn’t any more.

We should at least respect the Daily Telegraph’s candidness; it’s attacks on David Laws and Danny Alexander have been explicitly linked with their specific campaign to prevent the coalition’s agreement to harmonise Capital Gains Tax with income tax and to destabilise the coalition more generally.  What is more unfortunate is seeing numerous people within Labour and on the left joining in, perceiving in some vague unspecified way that Laws’ misguided attempts to protect his private life and Alexander’s significantly less misguided decision to only pay the amount of tax he was legally obliged to were somehow the moral equivalent to the more eyewatering examples of house flipping that Labour ministers got up to in the last parliament.  It is encouraging however that, overall, the media reaction has been relatively muted.  The Telegraph’s ability to blackmail and strong arm the political establishment to do its bidding seems to be fading by the day.

But in terms of Capital Gains Tax, there is a risk that the damage has already been done.  There’s no denying that the Tory right have been incredibly quick off the mark on this and caught supporters of the tax change unawares.  Even before David Laws’ resignation, the former Chief Secretary and George Osborne were already making warm noises in response to John Redwood’s “compromise” proposals.

This is something we simply cannot allow to let pass.  If, after just a month in government, the coalition reneges on one of the few concessions on economic policy that the Lib Dems managed to secure in the agreement, then the long term damage will be immense.   Give Redwood, Davis and company an inch now, and they will go on to take a mile.  It would set an appalling precedent and cast a shadow over the whole agreement.  What’s worse, the case against the tax harmonsation is incredibly weak and largely based on misconceptions about who pays and how Capital Gains works in practice.

The first thing to remember about the Capital Gains Tax policy is quite how little it is expected to raise in relative terms.  The big ticket taxation policy the Lib Dems campaigned on in the general election was limiting tax relief on pensions to the equivalent of the basic rate of income tax.  That (entirely reasonable) measure was to have raised £5.5bn.  Capital Gains harmonisation, by contrast, was only budgeted to raise £1.9bn – significantly less than the equivalent of a single penny on income tax.  From reading the more effervescent articles in the Telegraph and Mail, you could be forgiven for thinking that this simple adjustment alone would pay off the entire national debt!

An article in the Telegraph last week about how the policy could affect the tax burdens of “hundreds of thousands of old people in care homes” is a particularly good case in point.  Strictly speaking that may actually be true, depending on the timescale you are looking at and depending on whether you feel that a tiny, barely noticeable increase actually counts.  To put this into perspective, Capital Gains is only incurred on the homes of elderly people in care homes who have lived away from home for more than three years.  What is more, it only counts against a proportion of the capital gain accrued since the asset ceased to count as a primary residence – and even then only as a proportion of the capital gain accrued since 1982.  So, for example, a pensioner who has lived in a house since May 1970, moved into a care home in May 2007 and sold in May 2010 would only pay CGT on 1/444th of that capital gain.  If they sold next year, they’d pay CGT on 13/456ths, and so on.  Assuming the capital gain was £400,000, that CGT personal allowance was dropped to £2,000 and that the CGT rate was raised to 40%, that tax burden would go up by £0 or £3,526.77 (£234.63 to £3,761.40) respectively¹.  A £3.7k tax on a £400,000 profit (less than 1% overall) sounds reasonable to me – and the homes of most elderly people in care are typically sold well within three years.

The bottom line is, if the coalition government lacks the strength to make this modest tax adjustment, then how can it be trusted to make the much tougher decisions regarding the deficit.  Thus far, despite Nick Clegg’s reassurance of “progressive austerity” measures, the vast bulk of spending cuts have been predominantly targeted at the poorest and the young.  It is frankly incredible that young people’s futures are being put at risk while the government rules out even considering cutting free TV licenses for the wealthiest of pensioners (something which, to be fair, Labour are unwilling to contemplate axing or even moderating either).  How can we capitulate over CGT, claiming that it would risk the economy, whilst axing youth employment schemes and pricing people out of higher education and thus harm the very workforce we depend on to drive the economy forward?  The rhetoric is simply not meeting reality at the moment.

Indeed, the rhetoric of progressive austerity is at odds of a lot of the economic policy emerging from the coalition at the moment.  For one thing, it currently looks as if the Tory policy of addressing the deficit with 80% spending cuts and 20% tax increases will be pursued – something which inevitably will almost inevitably put the coalition’s actions at odds with the Liberal Democrat manifesto commitment to ensuring that spending cuts do not have an adverse impact on fairness².  While we should not repeat the mistake of signing up to any docrinal and artificial split between cuts and taxation, it is crucial that Liberal Democrats both inside government and out to continue to make the case for a greatest burden to be paid by the wealthiest.  The case for this is not merely moral; it is rooted in hard economics.  Even if you ignore the growing evidence that more equal societies perform better, you cannot escape from the fact that increasing absolute poverty while leaving vast swathes of unproductive wealth untouched will only make the recovery that much harder.

What we certainly must not do is allow our most progressive measures get bastardised in government.  During the run up to the election, along with most Liberal Democrats, I enthusiastically supported the Liberal Democrat policy to raise personal allowance.  There is much to admire about this policy, but it was always part of a wider, redistributive package.  Frustratingly, the coalition agreement has retained the commitment to raising personal allowance while dropping most of the new taxes that were needed to pay for it.  This means that to pay for it we will either have to impose even greater cuts on public services or introduce alternative, potentially regressive forms of taxation.

Cutting services for the vulnerable or raising VAT simply to hand the wealthiest a £700 tax cut would be nothing less than a scandal.  This doesn’t mean dropping the policy, but it does mean looking at ways to make it more affordable.  The simplest way to do this would be to drop the 40% income tax threshold by the same amount that personal allowance is raised.

Of course, it is to be hoped that Nick Clegg and Danny Alexander have similar proposals in mind and that we will all be pleasantly surprised on budget day (22 June).  But it has to be said that, the most abstract of rhetoric aside, they have not publicly been offering us much, while hinting that they will be siding with the Tory right over capital gains.  If they are to pull a progressive rabbit out of their hat in two weeks’ time, some reassurance that this might be on the cards would be timely.

The Social Liberal Forum Executive is holding an emergency consultation to ask what people think should be included in the coalition government’s upcoming emergency budget. Have your say on the SLF social network.

1. I am indebted to Matthew Turner for helping to explain this to me, as I am to the HM Revenue and Customs website – all mistakes are my own
2. The exact wording in the manifesto reads as follows: “Over and above our planned new levy on the profits of banks, we will seek to eliminate the deficit through spending cuts. If, in order to protect fairness, sufficient cuts could not be found, tax rises would be a last resort.”