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Sunday, August 13, 2006

Taxing the polluter

The Observer reports that the Tories are to propose a radical programme for steep tax rises on air travel and gas-guzzling cars offset by cuts in council tax, VAT and national insurance. Where the Liberal Democrats lead then the others follow.

The problem is that the Tory proposals do not make the tax system any fairer, nor do they add up to a coherent tax policy that helps poorer members of our society whilst penalising excessive wealth. In fact I can well imagine the Tory backwoodsmen spluttering over the cornflakes at even the very limited nature of their party's proposals, especially after the way that conservative politicians have defended the car in recent years in the face of congestion charges and parking taxes.

Presumably the only way that they can off-set green taxes against Council Tax will be to reduce the amount of money raised locally by increasing revenue support grant and capping local Councils. That will effectively increase the gearing effect and push up percentage Council Tax rises to unacceptable levels. Because Council Tax is regressive, then the Tories must consider replacing it with something fairer or they will penalise local Council Tax payers.

A few weeks ago I wrote of the Liberal Democrat tax proposals that "worthy as they are, these proposals seem unfocussed and lack a clear narrative. It is my hope that once we see the full details that will change." Having now seen the document I am much happier that it does address many of my concerns. In particular the party has found a narrative for the changes around the concept of fairer and greener taxes.

The proposals will lift two million people out of tax, whilst tackling climate change by taxing pollution. Vince Cable is quite right when he says that the current system of taxation is not fair. The bottom 20% of households pay proportionately more of their income in tax than the richest 20%. I hope that these plans will start to tackle that.

Clearly, there will be a debate around the 50p in the pound tax rate for the highest earners, but if we can achieve our objects of redistributing wealth and helping the poorest people in society without that rate then we should not be wedded to it. In fact the present proposals raise three times as much money from the well-off than the 50p rate proposed in our last manifesto. Equally, there is an argument for some form of property tax and that will be debated at the Liberal Democrat Conference as well. I am becoming more convinced of that particular argument and will be interested in what is said in Brighton on the subject.
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