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Putting Liberal Thinking Into Practice on Taxation

September 27, 2011

This post first appeared on Lib Dem Voice.

Liberal thinking on tax is based on both that the state has a duty to protect the poor and vulnerable, and that the state brings the best out of each individual.

The practical aim of Liberal Democrats is therefore to help to lift the less well off towards the average. This is not achieved only by handouts – which would be Labour’s priority – but by having a tax system that encourages work and aspiration for the lower paid.

Liberal Democrats are implementing the manifesto commitment of a £10,000 tax threshold. This is a figure rather than a principle. The more compelling liberal philosophical argument would be for the tax threshold to be set at the full time annual minimum wage. (See Nick Thornsby’s blog 1st August 2011)

No-one should underestimate the fundamental shift in attitude and approach that will flow from this idea. It encourages aspiration, it clarifies the role of benefits as a safety net and it stops the bad practice of the state taking with one hand while giving with the other.

Raising the tax threshold reduces the amount of income tax the state receives. A consequence of this in difficult times like now is that the 20% band could narrow, and the 40 % band will start lower, so that the tax tipping point is some level above the average wage.

Liberal thinking would support this, because Liberal Democrats believe that the poor should pay proportionately less tax than the better off. This is the principle of progressive taxation, and on this point, Liberal thinking differs from Conservative thinking.

The debate about a 50% income tax for the very rich should have one guiding principle. The very rich should under no circumstances be paying proportionately less tax than anyone else. All pragmatic discussions about the levels of income tax or capital gains tax for the very rich should be within the context that they pay their fair share as part of either being British, or living and working in Britain.

These ideas on tax are just an example of putting modern policy questions within the context of historic liberal ideas. When people ask ‘What do the Liberal Democrats stand for?’, I want people to know the answer.

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