This year’s prize for unanswerable political fact will surely go to Vince Cable: “You can’t put a mansion in a suitcase and take it to Monaco.” Unveiling the latest set of Liberal Democrat tax proposals, Mr Cable obeyed the first rule of third party politics: if you have to be wrong, then at least be interestingly wrong. In fact, Mr Cable is often wrong on things for which he is lauded for being right, and frequently has a good case where he has been mocked.
Mr Cable’s central proposal is a tax of 1 per cent per annum on houses of a value greater than £2 million. The “mansion tax” has been dismissed, not least by those of Mr Cable’s colleagues who felt bounced into a policy that could cost them dear in wealthy marginal constituencies. Indeed, the details of Mr Cable’s proposals are questionable. His plan would simply levy a large cash bill on a small set of households, not all of whom would have a healthy cashflow.
That said, taxation is an unfortunate necessity and governments need regular revenue from somewhere. There are, in principle, reasons to prefer the taxation of property to the taxation of income. Property taxes are, as Mr Cable colourfully points out, hard to evade. Revenues rise naturally with prosperity. Property taxes dampen reliance on property as a speculative asset, a lesson that ought to linger when the memory of the credit crunch fades. It is usually difficult to ascribe the benefits of growing property prices to the superior effort or creative ingenuity of owners. The value of any given property derives, as even the bad estate agents know, largely from its location. Desirability in location is chiefly a function of the surrounding area and values can be increased because of decisions taken by the public authorities for reasons that have nothing to do with local property prices.
For all these reasons, and divorced from the troublesome political realities, taxes on property are more desirable than a tax on successful effort, otherwise known as income tax. Mr Cable seems to understand this, which makes it all the more peculiar that he should wish to abolish the council tax — a property tax, even if an imperfect one — and replace it with a local income tax. The solution to local government finance surely lies in an updated and revised property tax rather than taxing income more.
Indeed, the evidence that the Liberal Democrats do want to reduce the taxation of income is contained in the package released yesterday. Mr Cable proposed that income tax should not be payable at all until a threshold of £10,000 is reached. Again, this is wrong but for an interesting reason. The idea of taking the four million lowest earners out of income tax is a good one were it not for the irritating contingent fact that the nation is in the red to the value of £170 billion. At the moment, a tax cut of this magnitude is wildly unrealistic, even irresponsible.
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These proposals have the whiff of the seminar room about them. Property taxes are electorally difficult. Tax cuts are practically impossible. That is not necessarily the criticism it sounds. The role of the third party is not to pretend that it is preparing for government. It is to make the other parties think. The day may come when a future government will be glad of Mr Cable’s advice. But not yet and not for a long while.