Fairy tale taxation policies

I had almost forgotten to comment on this:

Charles Kennedy is to drop the Liberal Democrats’ commitment to increased total taxation in favour of a more flexible strategy which matches Labour’s spending but still makes the rich pay more.

The Lib Dem leader and his economics team are determined to abandon the position they have held through three general elections on the need to raise total taxation. The new “tax-neutral” strategy will alarm MPs and party activists on the Lib Dem left who gave the leadership a bloody nose on spending issues at this year’s Blackpool conference.

Well, I can’t speak for anyone else, but “annoy” would be a better adjective than “alarm”. Not because there is anything of substance that comes out of this article that I disagree with but that Kennedy and Cable are a) pre-empting the very Tax Commission they set up to deal with this sort of thing and b) appear to be coming at it from the wrong direction.

I’m one of those Lib Dem “lefties” who was irritated at our post-1997 decision to replace our proposals to shift the burden of taxation from the lowest off to the highest earners with a general slush fund which we raised by charging incomes over £100,000 at 50p in the pound. As such, this move towards making this policy revenue-neutral sounds fine to me. The question is, what do we cut? Trebling our “efficiency savings” from £5bn to £15bn sounds all very well, but unless there’s a £10bn stash of paperclips lying somewhere, it means signalling a significant shift in government policy.

What we need to be hearing from Vince Cable right now is how exactly he proposes to do this. And whatever we do decide to cut, we have to agressively make the case. My big concern about the Lib Dem policy of scrapping the DTI for instance is that we have failed to spell out exactly what that means. It does mean, for instance, a significant rolling back of the state’s provision to bail out struggling companies. There may well be sound economic reasons for doing this (I’m inclined to believe that there are), but we need to make that case, not simply talk about the DTI as if it is some abstract, anonymous department that doesn’t have any responsibility over anything.

I happen to think that the overall levels of tax and spending at the moment are about right, if not the priorities. I happen to think you shouldn’t go into an election pledging to raise tax unless there is an absolutely clear need due to underinvestment. These are good reasons for changing our policy. What isn’t good policy is that we must rush headlong towards the centre and avoid being too much out on a limb. There is nothing wrong with having a distinctive policy on something that the other mainstream parties disagree with – that’s called having a unique selling point. Yet, this article suggests that Kennedy and Cable aren’t really interested in working out what level of taxation is best for the country, and more interested in what level of taxation is best for the party, given our electoral system. It suggests a weakness for political opportunism, which itself is one of the weaknesses that is already undermining the Lib Dems electorally (the accusation that we’ll say anything to get votes does hold some water). When both the other parties are haemorraging support, now is not the time to be following their lead.

So I’m fine about the proposal that we shouldn’t go out on a limb in terms of overall taxation levels, but wonder what this article suggests about Kennedy and Cable’s appetite for how radically we are to shift the burden of taxation within those constraints.

A final point, but if you are going to indulge in silly fairytale analogies, get your facts straight. The “medium-sized” bear in the tale was Mummy Bear and she was the one who liked her porridge cold. So when Kennedy talks of making us one of two “medium-sized” bears, he’s actually talking about making us a tax cutting party!

(no more posts about children’s stories for a while – promise!)