George Osborne

ConservativeHome on Sunday included this little piece of hubris. Now, it is true that, somewhat inexplicably to me, Gideon's announcement about raising the Inheritance Tax threshold, something that everyone seems to acknowledge affects just 6% of estates (about 30,000 families each year) currently, seems to have done them a lot of favours, positioning them in the public perception at least as a tax cutting party.

But it would be quite wrong on a number of levels to say that they are lowering taxes:

• First, they are simply shifting the burden. Sure, it is shifting from a few relatively wealthy households (with average house prices once again below £200k having a housing asset over £350k is still in the top quintile nationwide) who can and generally do vote to a very tiny number of households who generally can't and don't vote. But shifting, rather than cutting, it undeniably is.
• Second, even if it were not the "revenue neutral" shift (after all they have also promised to stick to Labour's spending plans so need the money from somewhere) it would amount to a tax cut of just 0.88% of the government tax take (that's central government by the way - i.e. excluding local taxes). If a party that has regularly claimed to be managerially superior and capable of saving government wastage cannot "lose" less than a measly one per cent of its revenue in efficiency savings, they're clearly not the competent financial managers they would have us believe!

It astonishes me that a measure that would be felt my fewer than 30,000 families per year can be spun as some major step forward in tax shifting, let alone tax cutting. Compared to the Lib Dem proposals - abolishing the Council Tax (the tax most respondents found unfair in recent polling by the Tax Payers' Alliance) would be immediately felt by virtually all households; reducing national Income Tax by four pence in the pound would be felt by every individual earning anything more than the personal allowance, the Tory changes to IHT and Stamp Duty on homes, are small fry - mere plankton in fact.

But both parties of course propose changes that are "revenue neutral". Nobody seems to be advocating real tax cuts. And maybe when the population wakes up to this fact they will see through the spin and reject those attempting to hood-wink them into believing they will somehow be much better off. On balance of course, the Lib Dem proposals would leave far more people better off, if they tread lightly on the resources of the planet, for most of our tax cuts are to be funded by increases in taxation for environmentally damaging behaviour and life-styles.

Vince Cable - the best prospective Chancellor by far?

So why is it not us that have made eleven percentage point gains in the polls? For I have to say, compared with either Gideon, Gordon, Balls or Darling I find Vince Cable the most palpably honest and certainly best briefed potential Chancellor of the Exchequer in mainstream politics right now. Might I suggest that it is a lack of clarity, especially about who gains and who loses under our proposals. This was most obviously apparent when Charles Kennedy famously fluffed his interview on Local Income Tax during the 2005 General Election campaign.

Our Green Taxes and local tax reform ideas have been criticized by others:

• as affecting the annual family holiday (wrong - they do however aim to penalize those very lucky tiny few who have the time, lack of domestic commitments and financial wherewithal to take weekend breaks abroad every month or two - where their flight costs pale into insignificance compared with hotel and entertainment costs)
• to hit the poorest households' motorists (wrong again - the 33% poorest households by and large still do not even have access to a private car and would in fact be likely to benefit from the resultant investment and better efficiency in public transport)
• or to greatly increase the income tax of those two young nurses of CK's fluffed interview (still wrong - the four pence in the pound reduction in national income tax is intended to more than cover the Local Income Tax and they won't be paying Council Tax on top).

So why can't we get that across to people? It's a far more compelling package than the Tories and their tax cuts for the rich - which is jam tomorrow for even those who might benefit and jam never for most of us.

Now, you would not expect me to comment on tax policy without mentioning my pet pair of elephants - Land Value Tax and Citizens' Income . I maintain that by adopting the "Single Tax" of Henry George - that is taxing the unimproved value of all land as a replacement for (most*) Income Tax, Capital Gains Tax, Inheritance Tax, Corporation Tax, and, if Europe were to agree, Value Added Taxes and returning most of even that Land Value Tax to the people to spend in the form of "an unconditional, non-withdrawable income payable to each individual as a right of citizenship" (the description used by the Citizens' Income Trust) would so transform our economy and environment that government expenditure could be reduced to just a fraction of the proportion of the national income it is today.

Couple this with monetary reform that would see a national credit authority, free of government and politicians' interference, creating just the right amount of new currency needed by the economy to account for each year's growth in the economy instead of privatised debt creation doing the same job with a lot less stability as recent weeks in the financial markets have shown, we would have virtually no need for taxation at all (except perhaps as a behaviour modifying mechanism)

Pie in the sky? Well, it may be. But surely that sort of promise is worth investigating at the highest level. We assume the way we currently operate - coercive taxation and state capitalism - is the only one possible. It is true that, as the joke goes, in order to get to that fiscal nirvana one would not start from where we are, but the potential attractions are so enormous that we ignore them at our peril. Land Value Tax has some heavy-weight supporters historically - Adam Smith, J S Mill, Winston Churchill, Lloyd George, Albert Einstein, George Bernard Shaw, Milton Friedman and others cannot all have been wrong, surely?

I stumbled across this group of bloggers the other day called the "Low Tax Coalition" .  I considered applying to join their number, but so far as I can see not one of them even dares to imagine the sort of low/no tax economy I set out above.

*I say "most" Income Taxes (and possibly CGT too) because I am becoming more convinced that some of these taxes on (some of) the highest earners may be necessary in the short to medium term to recoup the "embodied advantage" they have gained under the current less fair system. For an example of what I mean, look at the current Sainsbury take-over where the shareholders are about to crystalize property values worth up to around £10bn effectively valuing the grocery business at nothing despite its obvious earnings history and potential.

Property "guru" (well I say guru as I understand she participates in one of those DIY developer programs on a TV channel I don't receive, probably thankfully) Lucy Alexander reflects in the Times today on some of the potential effects of the Tory plans to try to take most family homes out of Inheritance Tax by lifting the threshold to £1m:

The property boom under Labour has created a generation of accidental property millionaires, many of whom are forced in later life to sell their homes to avoid imposing a punitive inheritance tax burden on their children.

Under the Tory proposals, the inheritance tax threshold would be raised from £300,000 to £1 million, knocking £280,000 (40 per cent of £700,000) off the tax bill for £1 million-plus homeowners. Will these now choose not to sell and instead, in time-honoured fashion, leave their homes to their children when they die?

Bless 'em. These poor APMs ("accidental property millionaires") are clearly now left in a dilemma few of the rest of us can actually comprehend. But the solution is all in the name...ACCIDENTAL property millionaires. Of course no doubt Ms Alexander, echoing Mlles Beeny and Allsopp, would say it is all down to the skill of the purchaser some years, perhaps decades, earlier that they had spotted an "up and coming neighbourhood" and bought into it when it was good value and have just sat back and enjoyed their "investment".

"Ricardo's Law:
House Prices and the
Great Tax Clawback Scam"
(Fred Harrison)

Well of course as property professionals they have to sell the dream, and Mandy Rice-Davies Applies; they would say that wouldn't they? But in reality it's absolute rubbish. When one spots an "up and coming neighbourhood", if one has been so assiduous in looking for a home, it's up and coming because other people want it, because there is public and private investment going into the local infrastructure and environment. It's yours and my tax money often enough that has been ploughed into an area and filters out like gold in a panning tray in the form of increased property values - as we shall perhaps one day see again when all the property around new Crossrail access points shoots up in value as a result of our billions of public investment.

Now I have said many times before I have no problem with the handing down of wealth from one generation to another. I do not share the notion of J S Mill that wealth ought to revert to the state upon death. If one has offspring, one works for them as much as for oneself. But what one passes on to them on one's death ought to be honestly and fairly gained. Not the result of hoarding what others need as a particular location gains in popularity and value because of the commercial and public economic activity that builds up around it.

If we taxed the land properly, the house buyer would perhaps be paying less than half what they have to today for their home, leaving them the opportunity to save their spare money in truly productive financial assets to leave to their heirs instead of the accumulation of other people's tax and economic activity and need for a place convenient for their work or their children's schooling or their college campus in the case of Oxford.

And how on earth are the non-Tory media and the other political parties letting the Tories get away with this scam of a tax cut for the tiny minority as if it's some beneficent gesture of redistribution? It's quite the opposite - the enclosure of the returns to public, commercial and community investment. Protectionism for the already privileged.

James Graham has done the short version of the Georgist objections to Conservative Plans over Stamp Duty and Inheritance Tax and, whilst I have blogged in the past about why we should indeed abolish IHT completely, I spotted this yesterday on "The First Post" which I think highlights a common confusion about IHT and, in particular, "real property" - ie your home...

Arguments for and against inheritance tax:

ARGUMENTS FOR (abolition/reform):

Inheritance tax no longer fulfils its original intention. Initially designed to raise money from the very wealthy, it now penalises more and more members of the middle classes. The very wealthy, however, can often afford financial guidance and find ways to avoid having to pay.

If that's what people are basing the inherent unfairness of IHT upon then I think they are wrong. Whilst one cannot argue with the second sentence (and the LVT solution would solve that fairly) I am not at all sure from the history of the various Estate Duty, Capital Transfer Tax and then Inheritance Tax regimes leading up to now that the tax was in fact "initially designed to raise money from the very wealthy".

In 1857 tax was due on estates above £20, though apparently rarely collected unless the estate was over £1,400. Using the RPI these two sums equate to just £1,200 and c£90,000 in 2006 prices, or £33,000 and £857,000 using average earnings indices. No, given the discussions around the various ways of levying land taxes in the People's Budget of 1909, I believe that death duties were intended to capture land value increases in a way that would not impact on the owner while they were alive.

It just so happens that around the turn of the 20th century, most land was in the hands of the "very wealthy" - landlords and large real estate holdings. Now, whilst it is much more widely spread, the increase in land values, seen especially in the past decade, are still a problem which the lifting of IHT thresholds will not address, in fact as James Graham points out, will exacerbate.

One other of the arguments for abolition in the First Post article goes as follows:

In taking a share of money from people who have already contributed income and capital gains taxes, inheritance tax is a form of double taxation.

This too is to misunderstand the nature of property price rises, where the increase in values comes from and so on. The property owner has not paid tax on the capital gains in their first home at least. Nor have they paid income tax on that increase. They may (but not necessarily I suppose) have paid income tax on the money used to buy the property in the first place. Nor have they contributed much, if anything, to the increase in value. That comes about because the location becomes more popular - more people need to have access to that location or ones like it. It is a monopoly profit in a zero sum market. Contrast this with the profit made from healthy economic investments such as equity in companies which only arise because someone, the company, is creating additional wealth.

Yet in attempting to take the family home out of IHT the Tories are doing precisely the opposite of what is fair and equitable. The monopoly "real property" profit the family is allowed to keep, whilst healthy investment assets are more likely to be taxed, if anything is. Of course I do not believe in waiting till someone dies before collecting the land value from the estate. It should be, as Adam Smith, Milton Friedman and Winston Churchill suggested the main or only form of taxation. Such would keep house prices down, allow people to save the rest of their income in productive assets instead, and be difficult to avoid, even for "non-doms". Then abolishing IHT would make sense, taking all the other productive capital assets out of what is a pernicious tax.

ConservativeHome highlights a speech at the LSE in which (despite what I assume to be an error in the first sentence) Cameron today says that whilst they will want to increase environmental behaviour modifying taxes, they will want to use this to cut taxes elsewhere.

Of course they already know that the Lib Dems have specific and costed taxation proposals that use green taxes to cut four pence off the basic rate of income tax and take many low income earners out of income tax completely. We also have a long standing commitment to replace the Council Tax (though of course you know I don't agree personally with our replacement Local Income Tax) which deals nicely with what turns out to be the most hated tax in today's annual Tax Payers Alliance survey, again highlighted yesterday by ConservativeHome. And our "Green Mortgage" proposals will help households deal with their most worrying expense - their fuel bills.

So Cameron, what are you and Osborne going to cook up to beat that? And when? You can't go on just blathering and blustering indefinitely with vague and vacuous platitudes to your CH readership. You're certainly not ready for government if you can't even tell us what you're going to do on taxes.

Speaking at the LSE David Cameron has crushed any idea that the balance of green tax measures under a Conservative government will be cuts to encourage good environmental behaviour rather than tax rises to discourage 'brown behaviours':

"By using green taxes as extra stealth taxes, Gordon Brown has given them a bad name.  I’m determined that the Conservative approach will be different. With my Government, any new green taxes will be replacement taxes, not new stealth taxes.

In a few days, our Quality of Life Policy Group will publish its report. It will contain many recommendations on tackling climate change, at home and abroad, including recommendations on green taxes.  As with all the reports in our Policy Review, we will study its proposals carefully.

But let me be clear.  We will raise green taxes, and use the proceeds to reduce taxes elsewhere.That is the right direction for the environment and it’s the right direction for our economy. It is the best way to deliver the green growth that must be our aim."

Much discussion on the TV and in the press overnight about will-he won't-he George Osborne endorsing John Redwood's idea of abolishing inheritance tax. There has been a protracted discussion about this in Lib Dem circles over the last year or so as well.

The irony is though that many of those that want it abolished do so because it is usually the "family home" that pushes an estate into IHT liability. Ironic because of all the possible assets one might have accumulated in one's life, the value of one's property is the most likely to have been "unearned". Many proponents of abolition reckon that because they paid tax on the earnings they used to purchase their house, so any rise in the value of that property ought to be untaxed - that anything else is "double taxation".

The trouble is, you don't earn the rise in your property value. It happens because other people need what you have - a site in an increasingly popular location. A popularity most often created by expenditure on things like infrastructure that make that location better connected. It is monopoly profit.

Most of the other assets you might leave to your descendants - shares and so on - are productive assets that themselves help create wealth. Land values move wealth from those who don't own land, or own low value locations, to those who own better land, more popular sites, in a zero sum market.

So yes, abolish inheritance tax, but replace it with Land Value Tax, paid throughout the time you own that location, reflecting the value that others create at your location. Read about it: "Ricardo's Law: House Prices and the Great Tax Clawback Scam" (Fred Harrison)

If I'm a bit quiet at the moment it's because a. I have half a dozen unfinished blockbuster blog posts in progress and b. I seem to be putting in 12-14 hour days at work at the moment as I'm in the middle of a big software rollout. In fact I've just finished (at half past three in the morning) shutting down remotely tonight's 25 updated machines - perhaps I would be better off in India!

But I seem to have been "tagged" by James Graham for a response to George Osborne's statement that we are all living off the coat tails of the City of London, so I will try and honour him with a response! I'm not sure I share his or Jonathan Calder's interpretation that Osborne means the rest of us are living as "parasites" on the City. I don't detect such a value judgement in Osborne's comment. Rather I think he is in fact describing the status quo.

When as much Sterling is traded on forex markets in a week than our entire annual GDP - more in a single month than our entire national wealth - and when every trade generates a commission or turn for the middle-men in the City, Osborne is right if he is merely pointing out that we are too dependent on the City. What I can't fathom from what has been reported of his interview is whether any solution he might have to offer involves reducing the influence of the financial sector at the same time as trying to increase the competitiveness of British industry and non-financial sector wealth creation.

However much we may be dependent at the moment on financial markets for our national cash-flow (I won't say wealth creation because money is not itself wealth and pushing money around is not producing any tangible wealth, just pocketing tokens that could be used to buy actual wealth) it is unhealthy because it exploits all of us. In order to have enough tokens to trade in the volumes the interbank market needs to make a decent return they artificially inflate all the world's currencies. And then skim the cream off of what they have created.

I confess my mind is sorely troubled by recent events in the financial markets - partly why I am finding it very difficult to write about it. For several years now, after reading the likes of "The Future of Money: Creating New Wealth, Work and a Wiser World" (B.A. Lietaer) and "The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics" (Michael Rowbotham), I have become convinced that we are in the "last days" of a system based on debt, speculative froth and the dominance of money pushers, abetted by state protectionism of the highest order. Part of me wants this current crunch to precipitate the sort of crisis that will force us to find an alternative more sustainable system. The other part recognizes the inevitable pain to ordinary people such a collapse would cause unless we have an alternative waiting in the wings.

The problem is that they really do rule the world. Because we have given them the ability to create credit at will, to manipulate money supply, currency circulation and so on they utterly outgun all the real wealth production in the global economy. And it's only when we wake up to the fact that they are only able to do so by persuading us to borrow, usually on the back of land values that are in turn driven up by that borrowing until they reach what in the US has recently become a bursting point threatening the stability of the rest of the global market, that we will be able to do something about it.

A couple of blog posts in the past few days - one by Lynne Featherstone on Lib Dem Voice - have highlighted the issue of corruption, but there is no greater confidence trick and fraud than that perpetrated every day against us by the financial sector. Let's have some more discussion of how that affects us and what we can do about it.

There's been a bit of comment about the lack of Lib Dem comment about John Redwood's soon to be published report from the Tories' competitiveness commission (these commissions better hurry up and report if their ideas are going to be thoroughly discussed on Stand Up, Speak Up in time to get a manifesto written and costed for October!). So I thought I'd have a quick go.

I find John Redwood a bit of an enigma. No, enigma, I said, not enema. Nor Vulcan. For he is a libertarian (not, I don't think, the "neo-con" that Polly so caustically describes him). And it cannot be easy ploughing a libertarian furrow in an innately protectionist party. And I'm not sure that it's fair of John Hutton, for example, to say that this is all about a lurch to the right. The latter, in typical tribal partisanship, clearly forgets that the long term agenda of libertarians and anarchists alike, and once supported by the Labour Representation Committee and other Labour Party pre-socialists is the basic belief that freeing trade makes the worker better off. Makes more of the value of production feed through to labour than to capital.

And so, I find, as a fellow libertarian, after a fashion, Redwood's proposals are too timid. My gut instinct is that this sort of tinkering, far from the anti-monopoly true free trade ideas of Spooner, Tucker and George, swings the pendulum back towards employers rather than towards the level playing field that gives employees a fair chance. In that sense, it will sit well with the party of capital and big business. Some libertarian groups will hail it as a "step in the right direction". But it is not the revolutionary libertarianism of Redwood's background I don't think.

In the Lib Dems' manifesto for business in the 2001 election we were far braver - ditching the national minimum wage in favour of deals between trade and labour organizations on an industry and regional basis for example. Sunsetting five thousand, I think it was, pieces of legislation and regulation that bound up business even then. Creating a system where instead of being visited seemingly every week by a different government inspector covering a different aspect of its business an annual audit of all issues pertaining to the type of business would save huge amounts of time and effort and duplication in regulatory bodies. Disbanding the DTI (or whatever its constituent parts are now called).

And tonight on Newsnight Redwood looked a little uncomfortable (when doesn't he I suppose) defending his commission's work. It felt rather like those Lib Dem MPs in the run up to the last election trying not to say that prison/drug/sentencing reform was a fundamentally liberal idea and should be weighed as such by the electorate. Redwood could have gone out guns blazing defending libertarian ideals of a level playing field, anti-monopoly and truly free trade. But it will take a real Edward Scissorhands - more, one suspects, than the Tory party can stomach so long as their voters are the owners or aspiring owners of capital benefitting from protectionism - to cut all the red tape needed to create such an environment. But such is British politics that in the scramble for the middle high ground voter he did lots of side-stepping and back-sliding whenever the Paxman wannabe interviewer portrayed the proposals as reckless cuts for cuts' sake.

I still don't understand why any libertarian is a Tory. And it seems now that people at the Libertarian Alliance, where Redwood cut his libertarian teeth IIRC (or was it the Freedom Association?), now agree and are even thinking that now is the time for a true libertarian party in the UK.

Technorati Tags: Benjamin Tucker, Henry George, John Redwood, libertarianism, tories