A Taxing Question: Do Lib Dems want the Youth Vote?

A poll by the Hansard Society to coincide with the local elections in May had the Liberal Democrats winning the Youth Vote: 30% of 100,000 pupils in over 200 schools voted Lib Dem, with Labour and Greens tying on 25% and the Tories on 15%. National policies such as free tuition fees and opposition to the Iraq War probably account for it, but the Lib Dems could be about to squander this support. The reason is an unlikely one for the Party that still sings “The Land” at its annual conference: the virtual abandonment of any domestic property tax.

“Axe The Tax” (replacing Council Tax with a Local Income Tax) has allegedly proved so popular with Lib Dem councillors, MPs and activists that they were prepared to emasculate their Tax Commission’s recommendation for a national Progressive Property Tax (PPT) in the package of tax reforms to be put to their Party Conference in September. This is despite the entire Lib Dem Shadow Treasury Team and a clear majority of the Commission earlier this year endorsing the long-term aspiration that Party Conference approved in 1998[1] to “create a more sustainable and fairer tax system by shifting taxes onto pollution and resource usage and off people… so taking millions of low earning income taxpayers out of paying income tax altogether”. With this in mind, nobody on the Commission took issue with Shadow Chancellor Vince Cable’s statement on property tax in his first draft of a Direct Taxation paper that “land value taxation (LVT) is the long term aim”.

As a young Liberal activist in the 70s I took it as read that taxing the speculation and waste of natural resources was ‘a good thing’. Twenty years and an army career later, my return to politics found an odd combination of policies for local government finance in our manifesto. For commercial properties, Site Value Rating (the local variant of LVT) remained, covering “all land not used for housing or agriculture”. However, domestic properties would not be taxed at all: residents would pay a Local Income Tax (LIT) instead. In a review of local government policy in 1998, I suggested we might allow councils to extend Site Value Rating (SVR) to domestic properties too. Although that policy working party – like the current Tax Commission – accepted this extension of property taxation, the Party’s Policy Committee threw it out.

Although taxing land values is becoming fashionable elsewhere (LVT did the Green Party no harm in the last elections to the Scottish Parliament) Party local government spokespersons now regularly pan all property taxes as being “unfair”. Yet almost every economist and property professional inside and outside the Party accepts that, as Professor Iain McLean put it: “[having no tax on domestic property values] would be the height of irresponsibility … in the middle of a house price bubble”.

Lib Dem campaigns supremo Lord Rennard admits he has no evidence to support his claim that the Axe The Tax campaign would be seriously undermined by talk of a PPT which, like LIT, would be administered within the national Income Tax system. No home-owner would receive a ‘rating bill’ or any separate tax bill on account of their property ownership.

The problem is that Council Tax accounts for some £23 billion of revenue. The best that Environment Spokesman Chris Huhne (a keen advocate of LVT) can promise from ‘green taxes’ to counter-balance this is £4 billion. Extension of non-domestic rates to sites not currently taxed might bring in a similar extra amount while still benefiting most business occupiers through smaller bills. (Strangely, this kind of property taxation seems to go unchallenged in the Party). Elsewhere in the Commission’s package there are measures that could reduce the tax take from lower-paid earners but there is no hiding the fact that, without a significant level of PPT, the Tax Shift “off people” to which Lib Dems aspire will remain a pipe-dream.

Worse than that, scrapping Council Tax will add at least £20,000 to average house prices and the 3-4p extra income tax raised by local authorities to replace it will fall predominantly on younger wage-earners. A double whammy on the wealth creating young, just to placate retirees. No wonder some young Lib Dems feel that their Leadership has joined the wrong side of what Andrew Rawnsley recently called “The Age War”!

Cable has consistently pointed out that ‘ability to pay’ applies to wealth as much as to earnings, arguably more so. The PPT proposal that I helped him frame would neatly capture the main source of personal wealth: real estate. It was framed specifically to accommodate LIT within the package. A Homestead Allowance would have provided all home-owners with a tax-free living area. This would roughly equate to the building value of a modest home in their locality (based on postcode): worth perhaps £400,000 in parts of London but around £80,000 in areas with low housing demand. The value of all landed property personally owned above that would be taxed annually at just one percent. This would raise at least £10 billion, ensuring that there was a modest shift towards ‘sustainable taxes’ in the overall package. Inheritance Tax would go and at least two million people earning below the National Minimum Wage would be taken out of income tax altogether – yet most homeowners would also gain overall.

Unfortunately, following pressure from Lib Dem MPs, the Tax Commission’s paper defers any specific property tax reforms. The version of PPT that made into a late draft was so small in yield that it was embarrassing. It would be hardly worth the Inland Revenue setting up annual land valuation for the paltry returns generated.

Instead, Conference will be merely asked to approve a motion that includes “starting to base business rates on site values alone” as part of a “green tax switch” and accept as “a long term ambition” “developing the concept of land value taxation”, with “further work” on this to follow. Little attempt has been to disguise the sad fact that young working people will pay more taxes overall and older homeowners will pay a lot less. Home ownership will be even more beyond the reach of first time buyers, unless their parents can help from their own unearned wealth.

Liberal Democracy shouldn’t be about preserving inherited wealth or tolerating a housing market that only the asset rich – or those with parents able to lend – can afford to enter. Millions of parents like me understand full well that their generation really has ‘never had it so good’ and that a fair and free society is only sustainable if our unearned wealth is recycled in taxes to help the young and asset-poor (not just our own children) to share in what their work produces.

It is both immoral and unsustainable to allow taxes to rise on the diminishing numbers who work to maintain our quality of life, while taxes fall on those for whom unearned wealth continues to accrue. The only reason it happens is because older home-owners tend to vote while younger earners tend not to own homes or vote. If Liberal Democrats do not recognise the inherent cynicism underlying their increasing aversion to property taxes and accept what their highly regarded Shadow Chancellor puts forward in PPT or LVT – and then campaign for it among young disengaged voters – then they neither want nor deserve the ‘Y-vote’.

[1] Moving Ahead: Towards a Citizens Britain, as amended by Conference “usage” replaced “depletion”.

Cllr Tony Vickers was a member of the Liberal Democrat Tax Commission and is Chair of Lib Dems ALTER (Action for Land Taxation & Economic Reform)