Lib Dems face two ways on property tax

Vince Cable's proposal for a 0.5% tax on all housing wealth over £1m is very welcome. Whatever practical details need to be ironed out, these problems should not distract us - as they seem to be distracting much of the media - from the salient fact: at long last, a politician from a mainstream party has had the courage to address an important injustice.

The massive appreciation in house prices over the past decade and a half (even after the recent fall due to the recession) has produced windfall gains for some while others are locked out of the housing market. Any plan for tackling the present budget deficit fairly must tap into this underserved wealth and put it to public use. Vince is to be congratulated for opening this territory up for discussion.

The Labour reaction should be the traditional one to good Liberal ideas: we should nick the idea as soon as possible (refining it a bit in the process).

However, Vince's proposal does seem to leave the Lib Dems facing two ways on the basic principle of taxing property.

As part of their plans to reform local government finance, the Lib Dems propose to scrap the Council Tax (which is a tax on property) and replace it with a Local Income Tax.

But why replace Council Tax with a Local Income Tax, rather than, say, another, better kind of property tax?

Part of the standard argument for a Local Income Tax rather than a property tax is the 'Devon pensioner' objection - so called in honour of Sylvia Hardy, a retired Exeter woman who went to prison rather than pay an increase in her Council Tax. Some people living in very valuable housing have low incomes (often, but not always, the retired). The objection is that it is unfair to expect these people to pay the property tax because, given their low incomes, they 'can't afford it'.

For what its worth, I think there is little merit in the objection. There are multiple ways in which people can realize some of the value locked up in their house so as to meet the tax. And, of course, there is the reverse objection: Why, say, should a young two-earner couple struggling to pay a mortgage have to bear the brunt of paying for local services, subsidising those who have already accumulated valuable assets?

However, whatever its merits, my point here is that the objection is just as applicable to the property tax Vince Cable has just proposed as to any other property tax. Over at Liberal Conspiracy, an excellent post by Paul Sagar on Vince's proposal immediately prompted the objection. (If you scroll a little way down the comments, you'll see Sunder's persuasive response to it.)

So where do the Lib Dems stand now on 'Devon pensioners' and the injustice of local property taxes? If they still support a Local Income Tax over a local property tax, it must be for some reason other than that property taxes are inherently unjust for the 'Devon pensioner' reason...

With a bit of luck, Vince's proposal could mark the start of a wider Lib Dem rethink on local taxation.

Perhaps - one can only hope - it may even lead to the rehabilitation of that great lost cause of the left, beloved of Lloyd George and Herbert Morrison: Land Value Tax.