From the TUC

Lib Dem tax policy – just a bit too clever?

16 Sep 2008, by in Economics

The main issue at this year’s Lib Dem conference, from which I have just returned, has been their new tax policy (set out in a speech earlier in the year by Nick Clegg here). In many ways it captures the difficulties the party faces in these changed political times.

It certainly has progressive elements. As Vince Cable told me – meaning I asked a question at a fringe meeting – the proposal to close tax loopholes, such as higher rate tax relief on pensions contributions, is similar in purpose and effect to the TUC’s call for a minimum rate of tax for those earning more than £100,000, and raises about the same £5 billion. They also want to use some of the proceeds for tax cuts for low and middle earners, again in line with the TUC’s call for some money to be put into ordinary people’s pockets to head off, or at least mitigate, recession.

This is all good stuff. Vince Cable’s consistent calls for a progressive tax system are very welcome, and reflect a genuine social democratic trend within the Liberal Democrats -though we should not forget, as Kate Green of CPAG reminded us at the same fringe meeting, that tax cuts do not help the poorest as they do not pay income tax.

But this doesn’t sit very well alongside the other – and more recent -element of their taxation policy, which is to cut public spending to fund further tax cuts. Some items of planned government expenditure that they attack such as ID cards would probably be mourned by only a few. But at a time when the population is aging and more money is required to tackle child poverty, this looks like a pretty crude attempt to hang onto LibDem seats vulnerable to David Cameron’s refreshed Conservatives.

This is obviously a symbolic policy meant to send a signal about how Nick Clegg wants to position his party. It may go down well in LibDem/Tory marginals but wanting bigger tax cuts and a smaller state than the Tories may turn out to be a risky strategy for a party that has built at least some of its recent successes on being to the left of Labour on tuition fees, wanting those earning more than £100,000 a year to face higher tax rates and the Iraq war. Of course LibDems will always complain about being forced into a left/right spectrum by commentators and the media, and they have a point when they say many issues do not fit easily into a one-dimensional political model. But some policies stubbornly remain left or right. Paddy Ashdown was always fond of quoting Oilver Wendell Holmes that taxation was the price we pay for living in a civilised society.

The Lib Dems want a slightly less civilised society, but paid for in a fairer way.