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 ProposalTony 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”.
- 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.
- 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.
- 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.
- 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.
- 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.