What the Chancellor ought to do

Monday, 20 February 2012 15:30
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Anyone who knows anything about the Campaign will know what changes we would like to see made to the tax system. However, even if the government gave the go-ahead tomorrow, it would take at least three years to get LVT up and running. So what would we like to see the Chancellor do at the forthcoming budget?

The LibDems are said to be pressing for a wealth tax, but they have no business to be arguing for anything of the kind. It is a betrayal, or at least a misunderstanding, of the party's philosophical principles.The Liberal tradition, following on from Adam Smith, was to argue for a tax on the rent of land, which is a very different matter from a tax on wealth, or a tax on mansions, for that matter.

The LibDems have also been arguing for a higher threshold for income tax. We agree. It is absurd that anyone should be subject to income tax if they earn less than they could by working for around 40 hours a week at the statutory mimimum wage. There is a simple and uncontroversial way of achieving it: raise the threshold but increase the standard rate of income tax to compensate for the lost revenue. For most people this would make next to no difference, but it would re-shape the income tax system so as to reduce the barrier against marginal employment, which should cut the government's bill for unemployment benefit.

A slightly more radical way to raise extra revenue would be to change the Council Tax ratio. Top band properties are worth 6 times band A but pay only three times as much Council Tax. There is no reason why this could not be increased to a higher figure. It is far from what we would propose as an ideal solution but it would achieve much the same effect as Cable's Mansion Tax without the cost of the comprehensive revaluation which would be necessary to establish what was a mansion and what was not.

These suggestions are so simple and obvious that it seems strange that nobody in either the LibDem or Labour Parties has apparently come up with them. Or have they just not been picked up by the media? It does not add up.

What the Chancellor is most likely to do is the one thing he should not - a business rates "holiday" for owners of vacant properties. That is what is happening in Northern Ireland and in the Enterprise Zones. It is precisely wrong, since it discourages market forces from operating so as to allow rents to fall to market-clearing levels.
 

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