16:NO HARD LANDING EITHER
Donald Lowe is perhaps being a little more pessimistic than he need be (SustEc 13/2, page 35, No Soft Landing). I think the broad framework at least of current policy on both local and national taxation is perfectly workable. And part of that workability is the need to keep options open as broadly as possible.
No discussion of local taxation can be divorced from considering the decline in local democracy. Over the past three decades local government has progressively lost control of transport, direct control of police, large areas of planning policy, more recently housing and now education is lined up for the chop. There is very little left.
It is no coincidence that as this process of democratic evisceration has advanced so the amount of revenue raised locally has also dwindled ... now down towards the 20% mark. He who pays the piper calls the tune.
Axiomatic to the revival of local democracy, as part of a wider Green approach to relocalisation, would be the reversal of that equation to a situation where at least 75-80% is raised locally.
Can LVT do that on its own? This question illustrates the difficulties with LVT. As with the infamous Poll Tax it has a certain beguiling theoretical elegance. The trouble, as so often, with theoretically elegant schemes is that they can prove monsters in practice. In this case there are harbingers of intractable difficulties of equitability since on a very rough calculation the replacement of government support grants would require a level of LVT between three and four times the current rate of Council Tax. Quite apart from other administrative difficulties which might arise with LVT there would, at the very least, have to be some very elaborate schemes of rebate for those on low incomes. At least the Council Tax is simple. LVT could so easily become a bureaucrats' banquet.
Yet, on the other hand, to decouple revenue entirely from land value, as the LibDems propose ... to say that none of the vast increase in land value should be available for public use ... Is also intolerable.
Thus it is quite right to retain a mix of options. Unlike Donald Lowe I am not worried by the 'decentralist' nature of current policy. Indeed I welcome it. The whole point of political devolution is not simply that power is handed down, but that process will result in a wide diversity of local practice which, in turn, will lead to a better ability to make comparisons between what works and what does not. For example in education policy, who is to finally say whether one curriculum is better than another, or whether a standard curriculum is needed at all? Who is to finally say which model of health care delivery is better? Likewise devolution in local taxation will lead to a diversity of income tax, LVT, sales and resource taxes which can then be distilled and improved by mutual experience.
Indirect taxation need not be regressive if the distinction between necessities and luxuries is revived. My own belief is that such a revival should be based on the utility of goods rather than on elaborate schemes such as to measure the actual or putative carbon content of this or that item of merchandise.
In a nutshell what I propose is a form of graduated, banded purchase tax. To take a simple example a the washing machine is probably the domestic appliance that has probably done most to reduce domestic drudgery. It has reduced the washday effort from perhaps a day or more every week of unremitting toil with soap and a zinc board, to a few minutes' of loading and unloading. On the other hand the effort required to use a tumble drier is hardly different from that required to peg clothes out on a line or over a clotheshorse in the bathroom. Yet the use of a tumble drier can double or treble the energy inputs of washday, quite apart from the whole life costs of the machine in design and development, production, marketing, transport and eventual disposal. In consequence we might keep a washing machine at around the present level of VAT, whilst doubling or trebling the cost of a tumble drier.
Other examples might be dishwashers, which do not actually add much utility to washing up yet double or treble the water and energy required, powered as against unpowered garden appliances, powered as against unpowered weighing scales, air conditioning systems ... which by and large are unnecessary and not even very healthy ... unhealthy processed food and so forth.. A small family saloon might stay at around its present level of taxation, an executive saloon would double or treble in price, whilst anyone wanting and SUV might find themselves having to pay five times its current price.
For want of a better name I might call this Utility Tax. But such a scheme, if no more than a thumbnail sketch at present, does illustrate the comparative ease with which indirect taxation can be made progressive. The less well off are able to keep those appliances which hugely reduce the drudgery of daily life, whilst the affluent pay more, in some cases much more, for their resource guzzling frivolities.
In so doing we might hopefully start the process of weaning so many people off their technoholic obsession with resource guzzling gadgetry and innovation for its own sake and move towards a slower and more convivial pace of life. It might be helpful to such a cause to understand that so often technical developments are subject to a law of diminishing returns ... the more overall resources an appliance consumes the less real extra usefulness it is likely to offer.
Of course there must be a quid pro quo with income tax, both to rebalance the equation and to sugar the political pill. Donald Lowe is right in saying that income tax, per se, taxes incomes and not labour. But there is the awkward little matter of National Insurance. Effectively we have two income taxes. In itself this is hardly efficient administratively. But where one of those taxes, National Insurance, operates regressively and against employment, we should be looking to get rid of it altogether. Both Utility Tax and LVT would require a massive raising of personal allowances. Again, aside from sugaring the political pill, such relative movements in direct and indirect taxation would encourage a much needed switch from consumption to saving and the paying down of consumer debt.
Perhaps, apropos of Donald Lowe's last comments, this could constitute an intermediate stage to a further move away from income tax altogether and towards wealth taxation. Perhaps LVT would itself be more workable in such a context.