The Ideas Factory is a chance for you to pitch your own idea of what should be in the next Liberal Democrat manifesto. The proposal here is not the policy of the Social Liberal Forum. We will however be passing it – and the response it generates – onto the Manifesto Working Group.

The Proposal

Tony Vickers: For many Liberal Democrats, income tax is the most progressive of taxes. Those who earn most, so the argument goes, can afford to pay most (Forgetting that top earners are the top avoiders and evaders!).

‘Land taxers’, including ALTER members, usually dispute this. To us, the definition of ‘fairness’ in taxation can be summed up: “pay for what you take, not what you make” or even “tax wealth, not work”. More technically: “internalise the externalities” (which covers “polluter pays”, “no free lunch” and “reward investment”). What ethical or economic justification is there for giving any of one’s productive earnings to Government, so long as those who pollute or monopolise natural resources, do not pay their dues? As Vince Cable has said: “Ability to pay applies to wealth accumulated as well as to earnings.”

Following the Tax Commission and two lively debates in Conference (2006 and 2007), Party policy on land value taxation (LVT) is as follows:-

• Business rates to be reformed onto a site-value-only basis (Site Value Rating) and largely re-localised, within one Parliament;
• Site Value Rating to be levied on second homes and development permitted housing land, until residential occupation.
• LVT more generally – including on domestic property – “longer term”.

We also have an aspiration to raise the income tax threshold to the level of national minimum wage (NMW) – but no plan for how to do this. Among our wider policy aspirations are increased supply of affordable housing, sustainable land use and massive investment in transport and other public infrastructure – all currently unfunded.

As ALTER’s representative on the Tax Commission, I presented proposals to achieve all this which were never discussed. I was told we could not dilute our “Axe The Tax” message with any suggestion of a domestic property tax. With the Credit Crunch, however, all neo-liberal economic textbooks have become obsolete, so perhaps it is time to refine and re-present these proposals, which now have the full endorsement of Liberal Youth. I suggest 5 simple steps:

1. When scrapping Council Tax and replacing it with a Local Income Tax, retain a national domestic property tax. The easiest way to do this would be to re-introduce ‘Schedule A’ income tax (imputed rent ‘earnings’ on owner-occupied property), hence exempting all who pay rent for their home. An additional personal tax allowance would be given to partially offset the burden on those owning modest homes by local standards – as used to calculate housing rent now. Pensioners would be allowed to defer net payments until death/sale/re-mortgage.
2. Remove the risk of a house price hike following the removal of Council Tax by ensuring yields from a revived Schedule A balance that from Council Tax now (£21bn). The basic rate threshold can then be raised correspondingly, taking millions of low earners out of income tax.
3. While the registers of land ownership and value are being completed, require occupiers (a) to pay property taxes (recoverable by deduction from rent) and (b) to self-assess site values, with local authorities given the power to acquire sites at the owner’s valuation if thought too low.
4. When the first national land valuation is completed, continue a ‘rolling revaluation’ to ensure the tax base remains a fair reflection of the land market and captures the impacts of all infrastructure investments. Convert ‘1’ above to conform with non-domestic site-value rating.
5. Phase out Stamp Duty, Section 106 (Developers Contributions), Inheritance Tax and Capital Gains Tax (on ‘real property’) over time, replacing them with a higher LVT, captured through income tax and corporation tax systems.

Social liberalism is about ensuring a fairer, more equal society. Ever since Liberals were thwarted from taxing land values to achieve such a society 100 years ago, taxing work and productive profits has served only to keep people poor. Such superficially “fair” taxation does not pay for welfare: it creates so much as create what James Robertson calls a ‘dependency culture’. A century on from the “People’s Budget”, a properly progressive Land Value Tax still remains “the change we need”.

Responses

Richard Huzzey: I should probably declare my interest as a member of ALTER and Green Lib Dems. I’m obviously very sympathetic to Tony: a switch to land value tax is exactly the sort of radical overhaul that the Liberal Democrats should be aiming for. Rather than tinkering with the edges of the current tax system, we should be asking what purpose such an unfair, regressive tax system exists for. I think ‘income tax’ has become fetishized by some liberals over the year as a ‘progressive’ tax, and one that is good for its own sake. Yet, as Tony says, it is easily evaded by the very wealthiest, and is based on some bizarre philosophical reasoning.

So, I’d welcome a broader change to taxing wealth accumulation where it disadvantages others, not wealth creation where it does not harm others. The big challenge, of course is finding a practical way to switch Britain to LVT, as the short-term crossover could be painful and disruptive if done badly. It also needs – as Neil Stockley would remind us – a ‘narrative’ to sell to people on the doorstep. So, while I’m sold on the philosophical advantages of LVT, I predict the struggle to convert the Liberal Democrats will pivot on questions of transition and its viability as a doorstep message. I expect ALTER will need to focus on on the problems of transition (as Tony addresses here) and the question of how you’d sell LVT in a Focus leaflet, and offer a simple message for its virtues against the inevitable smears and spin it would suffer.

James Graham: like Richard, I’m also an ALTER member, and I have similar concerns. I suspect that LVT is something that would be a lot simpler to sell in government than in opposition. Somehow we have to find a way to elevate it up the political agenda, and I suspect that will require someone outside of traditional party politics to make it hit the mainstream.

But within the party, the dynamic has to change from a “nice idea but it will never sell” approach to a “how can we make it sell?” one.