Monday 28 March 2011

Osborne reflects LibDem values says Clegg, as Cable offers to trade 50p rate for mansion tax

Chancellor George Osborne will be pleased that LibDem leader Nick Clegg and Business Secretary Vince Cable are paving the way for the Liberal Democrats to support the ditching of the 50p top rate.

Nick Clegg also offers a remarkably full-throated endorsement of George Osborne, telling the FT that Osborne's budget for the Tory-led Coalition was pretty much the budget which a LibDem majority government under Clegg would have chosen to introduce to reflect LibDem values.

Asked whether the Budget would have been any different if he had written it, Mr Clegg said: “Not much. This Budget was pretty close to what would have been delivered if I was prime minister and we had a Liberal Democrat chancellor.”

Mr Clegg has been frustrated by suggestions that Mr Osborne sidelined the Lib Dems and that the deputy prime minister had been the “loser” from last week’s package. “It’s completely bizarre,” he said.

When he was caught on a microphone during a post-Budget roadshow saying he could not find much to “bloody disagree” about with David Cameron, Mr Clegg said it was a sign of how closely the Budget reflected his party’s core beliefs.

But George Osborne will be less keen on Vince Cable suggesting that bringing back the Mansion Tax is the way to pay for a lower top rate. The Guardian reports Cable's comments to Radio Five on Sunday.

"It moved up to 50p in an emergency because we had to have a sense of solidarity that everybody was bearing some of the pain, and the chancellor said in the budget that we're going to have to move away from that. I agree with him. The Liberal Democrats agree with him.

"But it needs to be a change which is fair overall and does take account of the fact that the wealthy have got to pay their share. The emphasis may well have to shift from high marginal rates of tax on income which are undesirable, to taxation of wealth, including property, and the chancellor said that, as much as that, in his budget."

Asked if he was advocating a mansion tax, he said: "Well, there is a very strong argument ... that you need to have a proper base for taxing property and I'm sure that's one of the things we're going to have to look at as we change away from these very high marginal rates."

So how will this one play out?

It is important, as Cable says, to bring property and wealth taxes back onto the agenda. This is particularly important if parties propose large cuts in income tax, as otherwise these would be paid for by even larger spending cuts, with inevitably regressive distributional consequences.

But the FT headline "Property levies to fund cut in 50p tax rate" strikes me as seriously premature.

So here's a winning prediction for one of the next two budgets.

No 50p rate, but no mansion tax either.

I suspect, unfortunately, that the return of the Mansion Tax will turn out to be substantively rather more part of the strategy of LibDem differentiation and distancing for the next election than something which Nick Clegg is likely to genuinely push for the Coalition to adopt in the second half of this Parliament with any chance of success.

Indeed, even as Cable refloats the mansion tax, Clegg is already suggesting the LibDems would settle for much smaller and more incremental reforms, telling the FT this.

Mr Clegg said the coalition would not be reviving the old Lib Dem policy of a 1 per cent “mansion tax” on properties worth more than £2m but added: “It could be a range of things: the way the council tax system is structured; the way stamp duty is structured.”

And Boris Johnson will be even more pleased, having campaigned hardest of all for a policy which - totally coincidentally I am sure - is worth a £24,000 tax cut to him personally. A national campaign to give Boris his tax cut - and put an extra £2000 a month back in the pocket of hard pressed Boris - must surely appeal to the rest of the squeezed middle too.

We have been here before. The LibDems were pushing large income tax cuts by raising the income tax threshold to £10,000 but, before the election, defended this policy choice against analysis showing that it was regressive by stressing that progressive policies (like the Mansion Tax) would pay for it.

As the Social Liberal Forum's James Graham blogged:

The fact that raising the tax threshold helps people on higher incomes more than people on low incomes is not, believe it or not, a startling revelation. We know. The party has never tried selling this policy in isolation; we’d be mad to attempt to because people would rightly ask where we propose trying to find £17bn.

Yet the LibDems did then agree to detach the regressive tax break from LibDem policies to pay for it. Most of the progressive tax raising measures have been ditched (apart from a compromise over capital gains tax) yet the LibDems now herald the introduction of the £10,000 threshold as a triumph anyway, winning the praise of Norman Tebbit and the Tory right, still claiming it helps the poor most, while well informed Tory Centrists like David Willetts keep their heads down having long ago pointed out why the argument and policy are flawed.


However, the LibDems do deserve credit for having led in putting this issue on the agenda, just as they previously helped break the taboo on higher income taxes on the top 1%, having long favoured a 50p rate at the very top before the financial crisis (though that is a position Cable and Clegg are now less keen to maintain).

The Labour leadership is hesitant about property taxes. This was an issue which showed why the idea of 'Red Ed' Miliband has always been a silly myth, since a mansion tax was adopted by David Miliband but not by his brother.

One positive response to Cable's move would be to identify ways to promote some engagement over future policy development between those in the Labour Party and Liberal Democrats who think that property taxes - looking at the fairest and most effective ways to tax wealth at the top, and at how to win public arguments for this proposition. I doubt much will happen on that front under this government.

If two parties could find common ground, that might help to frame and define where the centre-ground ends up on this issue, and to challenge the Conservatives to go beyond funding the tax cut for Boris from yet deeper spending cuts.


T.N.T. said...

You're being far too generous to the Fib Dems, Sunder. They deserve credit only for being able to sell out more comprehensively to the Tory agenda than anyone on the left (including many of their own activists) would have thought possible.

This piece in the Sunday Telegraph has got me thinking that the Glib Dems won't be continuing for the whole of this parliament with Clegg is leader. That could mean he's replaced by someone else or it could mean the party splits in two... we'll see. On their current trajectory, the Lie Dems have managed to reunify the centre-left by leaving the pitch and are now operating somewhere deep in right field.

Stuart White said...

Sunder: great article. I agree that Labour and Lib Dems should be discussing wealth taxes as part of future Lab-Lib cooperation. And let's get the Greens into the discussion too.