Will the Lib Dems finally get serious about taxation this morning?

Mark Braund is remarkably generous about the Lib Dems on Comment is Free this morning, saying that “what makes the Lib Dem position on tax most interesting is their apparent willingness to discuss the far more radical idea of land value taxation (LVT).”

The truth is, this debate will be happening in the face of the Policy Committee and many members of the Party’s front bench. Last year’s Tax Commission report promised jam tomorrow, promising to revisit this issue. This year’s “Reducing the Burden” report makes almost no reference.

The debate within the party over LVT is often portrayed as an either/or deal between it and local income tax. Actually it is rather more complicated than that. Regardless of LVT, replacing Council Tax with a tax based on incomes will mean that we have no residential property tax. At a time when house prices are at an all time high, removing the one tax which is discouraging speculative investment – however slightly – is simply irresponsible. The Council Tax – Local Income Tax switch will lead to an average property price increase of £15,000. Great news if you already own a home; a slap in the face if you don’t. Worse, many people struggling to get on the property ladder will see their tax bill rise, while people sitting on enormous unearned wealth in the form of a house which has increased its value tenfold and more since they bought it, will be taken out of taxation altogether.

Party leaders like to claim that, regardless of the economic disbenefits, the policy is enormously popular. One of my less political friends naively put that to the test during the 2005 General Election by forwarding the party’s tax switch calculator website onto all his friends. He was shocked to find that almost all of them duly reported back that there was no way they were going to vote Lib Dem as they would have to pay more tax. When the party publishes figures to “prove” that most people would be better off, they like to cite pensioners and single income households. If the economic reality forces you to live with your parents or in an HMO, you are simply screwed.

Council Tax is a dreadful tax, but replacing it with LIT would be worse. You couldn’t replace CT with Site Value Rating (the local version of LVT) instantly, but you could make it fairer – as the Lyons Committee suggests – and begin work on replacing it with a progressive land value tax. What’s more, you could still have local income tax simply by localising 4p of income tax – that would have the added benefit of increasing the amount of taxation that local authorities collect from around 75% of their revenue to 50%, which would reduce the inflationary pressure we currently have on CT.

Longer term, we need to consider the benefits of a nationwide system of LVT. As Tony Vickers explains in his new book Location Matters, this would not only dampen speculative investment in property and make many more houses and derelict sites available on the market, but it can be used to invest in big infrastructure projects such as Crossrail and even be used to replace the Barnett formula. Much work would need to be done to introduce a pure system of LVT, but it could be done over the course of two parliaments. The Lib Dems’ vague promises on LVT, as they stand, aren’t a promise to do anything at all.

Hopefully the debate this morning will go the right way and the Local Income Tax obsessives will be thwarted to at least some extent. But either way, the party’s policy committee really needs to start taking a serious look at this and evaluate policy on the basis of what is best for the country rather than the short term (and highly debateable) political gains of introducing such economically irresponsible policies.