The Independent today reports criticism of Lib Dems' ideas for switching some of the burden of taxation off incomes, especially lower incomes and onto wealth accumulation, predominantly by the already well off and well paid, in the form of capping the tax relief on pensions contributions to the basic rate. I seem to recall the story will probably disappear from view for non-subscribers but you can still read it at the moment.

Of course regular readers will know that I'd prefer to tax only real property - the occupancy and ownership of scarce natural resources that we all depend on such as land, and not capital, but the criticism is unwarranted. You see, they complain that:

they would cut incentives for people to save for their retirement at a time when it was important to boost saving to help avert a long-term pensions crisis

and New Labour's John McFall, chairman of the Commons Treasury Select Committee, said:

"This comes at a very odd time. When the Government is trying to give every encouragement for people to save for pensions in later life, this cuts across those proposals. It goes against recommendations by Lord Turner and others to encourage savings. Instead, this will do the reverse. It is well-intentioned but naive."

Well-intentioned but naive is better suited to McFall's criticism though. There is no greater disincentive to saving for pensions than not having enough money left to put anything aside in the first place. And people in that situation are going to benefit from the transfer of part of the tax burden off of lower incomes and onto the ability to salt away ones excess income.

Already New Labour, friend of the working classes, has removed the cap imposed by the Tories in their heyday in 1989 on the proportion of one's salary one can put away in a pension fund. The effect? People with high incomes can choose to keep as income only what they need to survive and salt all the rest away in an ever wider range of pensionable assets, such as homes that other people might aspire to own instead of rent from the rentier pension fund, safe from the tax man.

As I blogged before, fully 50% of the population share just 7% of the accumulated marketable wealth of the UK. With a median household income - 50% of people live in households whose total income is below it and 50% above it - of just over £23,000 you have to be in the top 14% of households to fall into the Lib Dems' proposed higher rate (40%) income tax band of incomes above £50,000 and therefore be affected by this change - presumably even fewer individuals since this study is about household incomes (source: Institute for Fiscal Studies, Poverty and Inequality in Britain 2005 - this year's study shows no doubt similar figures, though I haven't looked at them yet).

Everyone else will have more (albeit slightly) left in their pockets and so increased capacity to save for a pension or anything else. Just who do New Labour, friend of the poor, want to help these days?

Me - I don't particularly like the tax proposal, and nor do I believe that it is feasible in the long term to rely for our pensions on being able to put away now some of what is already inadequate often to fund a decent lifestyle in the present, and hope that it will miraculously keep us in relative comfort in our dying days. But this criticism is, as they say, well-intentioned, perhaps, but naive, definitely.

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