Do Lib Dems really want to be the party that soaks the middle class?

Sep 26, 2012
Richard Ehrman

The mansion tax and other unspecified impositions risk putting the Lib Dems to the Left of Labour

'FAIR TAX IN TOUGH TIMES' is this year's slogan for the Liberal Democrats' conference. Hard to object to that, one might think. But if the party had really wanted to level with the public, as Nick Clegg tried to last week in his much satirised apology over university tuition fees, 'Changing Sides and Changing Leaders' might have been nearer the mark.
Ever since they went into coalition with the Conservatives, the Lib Dems have been wondering whether, next time round, they could not perhaps get into bed with Labour instead. Halfway through this Parliament, and with both coalition parties flagging badly in the polls, such musings are no longer confined to backbenchers and local activists.

Their ratings may be in the basement and they may have been roundly humiliated in last year's AV referendum, but when George Osborne's March budget bombed many Lib Dems saw the opportunity they had been looking for to cosy up to Labour, and win back at least some of the support they lost two years ago by allying themselves with the Tories.

Hence the calls this week in Brighton, from both the platform and the floor, for higher taxes to soak the rich and stronger opposition to any further spending cuts.

A significant move to the Left would probably also mean replacing Nick Clegg with Vince Cable sometime between now and the next election, which might not be straightforward. But senior Tories and Labour people have made the same calculation as the Lib Dems and arrived at the same conclusion, so as a strategy it certainly should not be lightly dismissed.

Nevertheless, one has to wonder if either the politics or the economics involved have been fully thought through by the Lib Dems. It is, after all, just six months since their MPs were marched through the division lobby in the House of Commons to support a reduction in the top rate of income tax on those earning £150,000 a year or more. Now they are calling not just for a mansion tax on houses worth over £2 million, but extra impositions – as yet unspecified – on anyone who earns upwards of £50,000 a year and also on well-off pensioners.
In economic terms it is undoubtedly the case that the most expensive homes get away remarkably lightly under the present council tax. It is also true that unlike many other assets, buildings cannot decamp abroad or be easily hidden. But while houses can't move people can, or they can buy foreign properties instead of British ones. When it comes to tax – even on immoveable assets - it is always wise to keep at least one eye on what other states charge.
If the Lib Dems have done their research they should be concerned that Britain, contrary to what many suppose, already levies higher taxes on property than many other EU countries, let alone low-tax jurisdictions like Switzerland.

According to a recent study by Deutsche Bank, the overall annual tax take from property in this country comes to three per cent of GDP compared to half a per cent in Germany and Italy and two per cent in France.  Indeed Germany, a country we are often told we should emulate by ministers like Vince Cable, not only has lower property taxes than us, but also no capital gains tax and lower inheritance taxes.

Politically, though, the surprising thing is not the Lib Dems' desire to penalise the genuinely rich – even the Tories now make the occasional nod in that direction - but their suggestion of higher levies on those earning £50,000 a year. That sort of money hardly makes you wealthy these days, especially if you have a family and live in the South of England.
Threatening to hit the middle class in this way might very easily prove self-defeating for the Lib Dems. Many of the party's leading lights, including Vince Cable, Ed Davey and the influential schools minister David Laws, represent precisely the sort of southern seat where penalising families in this financial bracket is likely to cause the most resentment.
The irony is that what is being proposed will not so much bring the Lib Dems into line with current Labour policy, as put them quite a bit to the left of it. If Nick Clegg is to see off the challenge from Vince Cable, he should ask his colleagues whether that is where a party that has always claimed to occupy the centre ground really wants to be?

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