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

Firstly, the name “Robin Hood Tax”. On LabourList, Sarah Hayward has already suggested that inviting comparisons with your tax and thievery may not exactly be a great idea. But more to the point, it just isn’t accurate. This isn’t a case of robbing from the rich to give to the poor; it is a case of robbing from the banking system – which we, the companies we work for and the pensions we hope will look after us in old age all participate in – and giving to the government. I don’t wish to sound like a swivel-eyed libertarian, but I need to hear a stronger argument for how that would be genuinely redistributive before I sign up. There is certainly an issue surrounding bankers awarding themselves unjustified bonuses, and you might call that a reverse Robin Hood effect, but it is by no means clear how this tax will tackle that.

Secondly, my old sparring partner Andy Mayer makes an interesting point on his Facebook page:

The figure for global banking profits comes from the campaign website itself $788bn and refers to the year 2006, at the height of the boom. Using the same source as the campaign more recently, the 2008/09 profit figure is just near $120… hence this Tobin tax, if implemented, would be akin to a special corporation tax of between 50-350%.

In the last 8 years I there would only be 3 years where the industry could have afforded to pay it from profits. In the last year it would have had to have been taken direct from bail-out funds, a somewhat circular exercise for government.

Now the Robin Hood Tax is not a tax on profits so there is a danger of comparing apples with oranges here, but the simple fact is that a charge has to go somewhere. It either cuts into profits or it gets passed on to the customer. I’m not, I have to confess, entirely clear what would happen precisely – there are lots of variables – but the Robin Hood Tax website doesn’t seem to want to enlighten me. Perhaps the 0.05% level is too high? Perhaps there should be other restrictions? I have an open mind and would like to hear a debate; instead I’m just being asked to add a mask onto my twitter profile pic.

Thirdly, and this is where I really start to get nervous, the Robin Hood Tax is not the same thing as a Tobin Tax. James Tobin’s proposal was intended specifically to attack currency speculation – not to raise revenue. The Robin Hood Tax, according to their own blog is intended to do the exact opposite.

Why does that make me nervous? Well because when it comes to taxes, I’m highly dubious about taxes on economic activity. Economic activity is a good thing: it gives people jobs (and meaning). Markets aren’t perfect and can create all sorts of anti-social problems but it isn’t the economic activity itself which is the problem but, generally, monopolisation and speculation. Taxing all financial transactions equally won’t tackle bad economic activity any more than the good – it’s just another way of screwing money out of the rest of us. What’s worse is that unlike the Tobin Tax, this idea isn’t about discouraging what is arguably a bad economic activity but profiting from it. Speculation just ruined your economy? Dont worry, here’s a sticking plaster courtesy of the Robin Hood Tax.

Let’s introduce taxes that don’t create perverse economic incentives (such as land value taxation) before creating new ones that do.

Fourthly, there is the Richard Curtis factor. Okay, maybe it is a bit harsh to pick on Curtis, who does seem to mean well, but there’s something about his “love, actually” world view that makes my skin crawl. To promote the campaign, he’s made this video starring Bill Nighy:

Like most of Curtis’ films, on a basic level it is harmless enough but as soon as you start thinking about it the more pernicious you realise it is. Ooh, what a nasty greedy banker! Boo to him! This from the man who gave us the all white Notting Hill (which has now become a self-fulfilling prophecy courtesy of David Cameron and his pals).

Okay, maybe that last point isn’t a particularly strong one, but it is this sort of superficial, anti-intellectual marketing that has got the world in the mess it is today. Is the Robin Hood Tax a brilliant idea? Feel free to try convincing me, but spare me your celebrities, your claims that you can get money for nothing and your *gag* guerilla marketing exercises (a protest at 4am? Edgy!).

Further reading:

• Freethinking Economist: The curse of nef: Tobin Taxes
• Jane Watkinson: Tobin or not Tobin…

One of the many things I meant to do this summer was to write a review of this pamphlet.  It is a highly readable account of the financial mess we are in and challenges a lot of assumptions – in particular George Osborne’s apocalyptic insistance that cutting public borrowing is the main priority and that the situation is analogous to where the UK was at in the late-70s/early-80s.  It also proposes the introduction of a property tax – albeit at a higher rate than the one Vince Cable is now proposing.

It is a well deserved award and congratulations to all concerned.

Title: After the recession, a different future
Date: Wednesday 1 July 2009
Time: 7.30pm-8.30pm
Location: Room Q, Portcullis House, Westminster, SW1A 2JR

Full details are available on the Flock Together website. Please confirm if you are likely to be attending on that website so we can keep an eye on numbers.

Our meeting the other week with Danny Alexander MP was very constructive (and well attended!). One of the recurrent themes at that discussion was the need to tackle equality and in particular the findings in The Spirit Level: Why More Equal Societies Almost Always Do Better by Richard Wilkinson and Kate Pickett. Social Liberal Forum council member Rev Chris Brice will be hosting a talk with Richard Wilkinson at St Martins Church, Gospel Oak, on Sunday 5 July and would like to extend an invitation to SLF supporters to attend. Details are available at the Flock Together website.