The idiocy of a wealth tax

In a fairly blatant attempt to placate the Lib Dem faithful before conference season, Nick Clegg floated (again) the idea of a wealth tax. Some Tories seem to think the idea has merit. It doesn't, it raises almost no money and would be a nightmare to administer.

Before I get on to my own objections, let's just look at two justifications put forward by its advocates:

1. Clegg's: to prevent social unrest. Really? Are the British people so violent that they would riot in the streets in protest at John Terry's wealth? And if they are, would they be placated by a 1% tax on large houses?

2. Some Tories': to shift the tax burden away from income and towards wealth, encouraging the aspirational. Ok, well, in order for this to enable a decrease in the income tax burden, the wealth tax would have to be substantial. The equivalent taxes in France raise a few billion Euros a year. You'd need at least a tenfold increase to make any impact on the £250billion in Income Tax and National Insurance* the government collects each year. Moreover, the aspirational middle classes are unlikely to distinguish between an income tax this year and a wealth tax next year, particularly given the latter continues after you've retired.

So what's the real problem with a wealth tax? Put simply, it would be incredibly expensive to administer. Astronomically so. Although, the Guardian naively believes it would be really simple:

The mechanism for collecting the tax could be straightforward though – higher rate taxpayers already file an annual tax return relating to their income, and pages could simply be added for a wealth statement. However, income tax is collected a year in arrears – if you were to try and do the same for wealth, you would be asking in January 2013 about assets held in 2011/12. People would need notice that they needed to keep the paperwork.**

This is nonsense. Most people have no idea what their net worth is. Why? Because unless it's cash held in a bank account, wealth doesn't really exist as a number. It's an estimate of the cash you would have if you sold everything. Why is that a problem? Because estimates are judgement calls and judgement calls can be argued about. Armies of tax accountants would make huge amounts of money arguing that assets were worth less than they at first appear. There would be huge incentives to invest in assets with opaque values. A new market in complex financial products would develop that returned income but appeared to have no taxable value would spring up (and that's definitely a route we want to go down). Worse still, many people would seek to hide assets altogether. The divorce courts already struggle to pin down the true net worth of rich individuals. Imagine doing that for everyone.

Here are just a few of the questions any substantial wealth tax would have to grapple with:

• How do you value complex financial products? Particularly, how do you value hedging instruments, derivatives and other assets whose value is based on future events?
• How do you distinguish between houses that require repair and houses that don’t? Bear in mind that many buyers of high end houses intend to make substantial changes anyway, so it isn’t clear value is added by making repairs.
• How do you deal with deliberate actions that decrease asset values (e.g. bricking up windows, burning down unwanted outbuildings etc)? Where people have valuable property they use but don’t intend to sell, they may well take action to decrease the value of elements they don’t care about.
• How do you deal with unnoticed issues? I’ve just discovered my house has subsidence. This massively decreases its value but it also means all previous values were wildly optimistic. Can I have my tax back please?
• How do you value debt, and which types of debt do you include?
• How do you value shareholdings in unlisted companies? Do you add a premium for having control of those companies? Which valuation method do you use? If you use earnings, what multiple do you use?
• How do you value intangible assets?
• How do you account for depreciation?
• How do you value (or even identify) offshore assets?
• Do you include the costs of realising the value of an asset in calculating someone’s wealth? If so, how do you estimate these?
• How do you value assets held in bank vaults? Come to think of it, how do you make sure people aren’t stashing cash under the bed or in their basement?

 I’m sure there are many, many more issues thrown up by the vast complexities of everyone's finances. The answers to the questions above are not trivial or easy to apply universally. It would require an enormous government bureaucracy to manage that would consistently be challenged in the courts. As a result, the system would be a nightmare to deal with and phenomenally expensive, rendering it a hugely inefficient way for the government to raise revenue.

There is one more issue I'd like to point out. When taxing wealth, you will very rarely be taxing a number in a bank account. The vast majority of this tax will be raised on non financial assets. As a result, you need a way to assess the values of said non financial assets. This will almost always be done with reference to market prices. The value of my house will be based on the selling prices of other, similar houses in the same area. The problem with this is, I don’t control those prices. The price of those houses is decided by an agreement between two people I have no influence over or contact with. And yet, that price will decide the value the government puts on my house and therefore the tax I owe. As a result, my tax burden is decided by an agreement between two people that is totally disassociated from me. If the seller negotiates a particularly high price, good on them but I’m screwed. Similarly, if the seller is desperate to offload said house, I end up a winner.

I don’t know about you, but I have a massive problem with that setup. It does not seem right, that someone's tax burden should be decided by something completely out of their control. In all other areas of tax, I have some level of control over it. I can choose not to accept a pay rise, or to spend all my money on Jaffa Cakes and children’s clothing. 

At the point where I am taxed based on the actions of others in this way, the tax system ceases to be anything other than the state taking money from me because it feels like it. I don’t like that.

I'm sure proposing a wealth tax seems like really good politics to Nick Clegg. To the rest of us, though, it should just be a really, really bad idea.

Sources:
* HMRC: http://www.hmrc.gov.uk/stats/tax_receipts/tax-receipts-and-taxpayers.pdf
** The Guardian, 29 August: http://www.guardian.co.uk/money/2012/aug/29/clegg-emergency-wealth-tax?newsfeed=true

The Qatada decision protects us all, we should celebrate it

This week's furore over the failed deportation of Abu Qatada has been an unedifying spectacle indeed. Those determined to deport him have not only lambasted an institution that provides important protection to British citizens, they have also suggested that the government ignore the courts and accept whatever punishment is handed down.

Opponents of the ECHR have complained that the case shows the stupidity of human rights legislation. The courts have lost their mind, we are told, and should go back to defending the rights of people we like. Politicians of every stripe have queued up to attack the decision with tremendous gusto (who ever lost an election for attacking a terrorist? The West Wing says it, so it must be true). They point out quite how evil Qatada is, a convicted terrorist in Jordan and bilious preacher of hate. They are right that he seems to be a truly unpleasant piece of work.

And yet, even if Qatada is guilty of every accusation levelled at him, I cannot help but feel that the debate has demonstrated the vital role institutions like the ECHR play. It has been a clear demonstration of how easily our own justice system may ignore Human Rights. Worse, it has shown how willing those in power are to ignore those rights when it doesn’t suit them.

Human rights took root in our most enlightened moments during the 20th Century, usually after witnessing some dreadful atrocity. We recognised the common dignity of humanity and the necessity to protect every person, regardless of where they came from and so set down a few principles that we felt trumped others. It was a victory for our better angels over the demons that so often corrupt our morals. Moreover, it was made knowing that we would forget the horror of human rights abuses. We would forget how easily rights are eroded and how tempting it can be to ignore them. And so, at a moment when their importance was clear in our minds, we codified them and gave them incredible status within the law. We knew the day would come when we would think them unnecessary or unwieldy, so we made it phenomenally difficult to back out of them. The Qatada decision is not an expression of contemporary modern human rights madness; rather, it is a reminder from our better angels of the importance of  fair trials and how awful it becomes when we erode that right

That may be the lefty defence of the ECHR. There is also, however, an argument that appeals to the right-winger within me. If there is one lesson from the 20^th Century, it is how extraordinarily vulnerable we are to the overbearing power of the state. Both groups and individuals have suffered great harms and injustice at the hands of state institutions, often with the open consent of the majority. It is not just the victims of Nazi Germany and Communism who fall into this category. The treatment of prisoners (and protesters) in Northern Ireland, the introduction of control orders and repeated assaults on trial by jury in the UK alone show how willing governments can be to trample on human rights. Human rights legislation exists not to protect us from each other so much as to protect us from the state. With that in mind, it is logical that when this legislation is truly effective, it acts as a check against state actions, infuriating governments in the process. If everything ticks along smoothly with no controversy, I would be suspicious that the courts were not providing an effective check. That Abu Qatada's deportation should be stopped, to howls of anguish from the government, tells me that our current system is robust and effective. It proves that I can feel secure that the state cannot go beyond itself and abuse the freedoms I hold dear. Indeed, I now know that if the state one day comes for me (as, apparently, is its wont), the courts will protect me. 

Qatada is scum, but he is human. The courts have proved that even the worst and most hated in society will be protected. For a while at least, we can feel safe and protected against the vicissitudes of the state. For that, we should all celebrate.

P.S.

Ignoring whether we should welcome the decision of the courts, let us take a moment to consider the pathetic idiocy of those who encouraged Theresa May to deport Qatada and accept the consequences. In the UK, deliberately ignoring instructions from a court is an incredibly serious offence. Contempt of court frequently carries a jail sentence. In that context, to suggest it is ok for the Home Secretary so flagrantly to ignore a court decision is grossly irresponsible. Furthermore, every encouragement to ignore the court and deport Qatada tacitly includes the justification “because we can afford it”. Whatever fine the courts might hand down for such a transgression, goes the argument, the resources of the British state could cope. This attitude exists elsewhere in our legal system, where companies sometimes generate profits from transgressions that vastly outweigh the fines regulators can hand down. Similarly, the rich sometimes feel able to buy the right to break the law. It is disgusting and to validate this attitude by encouraging the government to take it is beneath contempt (Peter Bone – I’m looking at you).

Why everyone should ditch the outrage and listen to Diane Abbott

A leader in the Black community makes a comment on Twitter in which she generalises about white people. Cue gleeful outrage from an assortment of right wing commentators gleeful that one of the left's most articulate advocates has opened herself to the accusation of racism. 

Wow. Isn't it time we all grew up?

Abbott's comments were rather clumsy and unhelpful additions to any debate about race. Nevertheless, I cannot be outraged by them. Indeed, the only response I really have can be summed up with the phrase: "Am I bovvered?"

Here's why:

1) I don't have a right not to be offended and would prefer to err on the side of Abbott being able to say whatever the hell she likes.

2) Even if you take her words at their most pernicious meaning, I'm pretty sure they're not true and similarly sure Abbott doesn't believe them herself.

3) 142 characters isn't exactly a recipe for subtle and nuanced debate.

4) If that is a concern some people hold in private, it's probably useful for it to be aired in order to be refuted.

5) Many Black people still get a raw deal in this country and certainly have in the past. Some hyperbole producing anger is probably reasonable/ understandable/ forgivable. Take yer pick.

6) Sometimes people fuck up. Deal with it.

7) I have all the time in the world for Diane Abbott.

Racism is a serious thing. Daft generalisations should be challenged as unwise and unhelpful but to jump on them with quite so much alacrity is pathetic. To describe Abbott's comments as racist associates her with the purveyors of hatred, vitriol and violence. It validates racist views by creating the appearance that everyone is at least a little bit racist and therefore it is ok. It isn't ok and most people aren't racist (thanks, in part to leaders like Diane Abott).

Perhaps it's time we spent a little less time condemning people to score political points and a little more time confronting the issues.

How to get a Tory to agree with Laurie Penny

Nadine Dorries' amendments stem from her own anti-abortion prejudice and don't even deliver what they claim. They are an insidious attempt to restrict access to a service that helps thousands of women every year.

Over the last couple of days Nadine Dories has achieved a remarkable feat. As a result of her activities in the House of Commons and lobbying on the Health and Social Care Bill I find myself appalled by Government policy and in complete agreement Laurie Penny of the New Statesman - something I never really thought would happen.

Now I've never been a tremendous fan of the MP for Mid-Bedfordshire. She has campaigned to reduce the time limit on abortion and is a member of the socially conservative Cornerstone Group (motto: Faith, Flag, Family - creepy or what?). I don't think we're going to see eye to eye on a huge range of issues. Nevertheless, this week she has surpassed even her own chequered history.

Dorries worries that women seeking abortions don't have access to proper counselling before going through with the procedure. Some of the principal sources of this counselling are the abortion providers themselves. Since these providers receive money from the NHS every time they perform an abortion, they are financially incentivised to counsel vulnerable women to have abortions.

This is where the nonsense starts.

It paints abortion providers as institutions not that exist not to furnish women with the ability to choose, but to perform as many abortions as they can. This is mental! How would Dorries react to the suggestion that midwives should be prevented from advising pregnant women? After all, they depend on women giving birth for their livelihoods!

But, I hear you cry, surely you can't really object to ensuring the counselling we provide is independent? It should help women make the decision that's right for them not just provide a justification. Fine. But there are two responses to this:

1. There's no evidence that the current system doesn't provide independent advice already.
2. THAT'S NOT WHAT THE AMENDMENT DOES.

When you read Dorries' amendments, available here, they don't create a framework for ensuring abortion counselling is independent. Oh, they use the word "independent", sure, but their definition is intriguing:

Information, advice and counselling on abortion is independent where it is provided by:

"either a private organisation that does not itself provide for the termination of pregnancies or a statutory body".

In other words, counselling provided by the Catholic Church is independent. An evangelical Christian telling a teenage girl that she will burn in Hell if she terminates her pregnancy is independent. A professional counsellor employed by Marie Stopes explaining the pros, cons and risks of abortion cannot be independent.

I'll leave it to the experts to tell you the ways in which this will harm vulnerable women. However, I am happy to denounce it as a cynical attempt to manipulate thousands of women into making the decision Dorries wants them to make. It shouldn't be Tory policy and it certainly shouldn't be government policy.

If you agree, you can contact your MP through the Abortion Rights organisation.

An explanation, but not an excuse

The riots in London (and elsewhere in the UK) this week have presented us with a highly uncomfortable truth. A large proportion of our youth are willing, given the opportunity, to commit crime on an unprecedented scale. Faced with a police force unwilling or unable to stop them, they will rampage through their own communities, destroying everything that friends and neighbours have worked hard to build up.

These have been crimes perpetrated almost exclusively by apparently feral youths. Worse still, the victims have been those who should bear the least blame and most credit in these communities. The victims are honest and hardworking, providing important jobs and services where few of either exist. Many of them have risked a great deal to start businesses in difficult areas in the hope of a better future. That these people should have that hope trampled on for ephemeral consumer goods or the momentary high of a thieved bottle of vodka disturbs us all. Their dispassionate willingness to ruin livelihoods chills the blood of those anxiously watching through their own windows, praying the mob does not come for them. The victims were not bankers claiming massive bonuses while presiding over huge losses or politicians fiddling expenses. Neither were these attacks directed at the notoriously trigger-happy police officers of SO19, whatever the rights or wrongs of Mark Duggan's death may be.

All this has contributed to calls for a brand of policing more reminiscent of Cairo or Tehran than London; it has become fashionable, among people as well as politicians, to denounce the rioters as "mindless" and "purely criminal". Meanwhile, some on the left have bent over backwards to justify the looting. At one stage, the Guardian even quoted an historian describing the looting as "a political act". Both of these perspectives misread the truth of the situation.

For years, urban communities across the country have struggled with crime, poverty and drug use. They have been left behind by an economy that has disproportionately rewarded the richest whilst leaving the rest to pick up the scraps. At the same time, the inexorable march of technology has beamed the wealth of the rich into the front rooms of the poor. Quality of life is measured by the clothes you wear, TV's you own and money you can spend above all else.

Politicians have sought to seize the centre ground with policies that appeal to the middle classes. They have rewarded home ownership while shrouding the failure of inner-city education in the cloak of inflated exam results. Drug policies have incarcerated parents in need of treatment, leaving children without role models and resentful of the state. Our adoption laws force willing parents to wait while channelling desperate children into an overstretched care system that abuses and dehumanises them. Too many youth and mental health workers have been dismissed as unnecessary ancillaries rather than key components of the fabric of society.

All of this has served to create a group with a smaller stake in society than any since before the First World War. Children grow up in areas bereft of opportunities in families where few have worked in years. The unchecked march of drug abuse (and pathetically dogmatic response to it) has created a huge number of teenagers for whom law-breaking is the norm. In this context, should we really be surprised that, convinced that the police won't intervene, they go on the rampage?

At the same time, parents seem to have abrogated their responsibilities on a scale hitherto unimagined. The suggestion that perhaps they should have control of their children has too often been greeted with a shrug and a gesture at how few services the state provides for young people. The state has convinced too many people that raising children is its responsibility and not theirs. This has led them to abandon their responsibilities and leave their children to find entertainment on the street. Our benefits system rewards bad choices by funnelling money to teenage mothers and pushing the long-term unemployed onto incapacity benefit. Too often entering the workforce is a foolishly uneconomic decision. For those who do seek work criminal records, drug use and a lack of education has probably permanently excluded them from employment. The only way out exists through crime and many are accustomed to criminality at a young age by their peers and older siblings.

As a result, there is now a group that has little stake in society and no hope of establishing one. They grow up knowing that when the opportunity to profit through crime appears, it should be taken and over the last few days, a myriad of opportunities have opened up in front of them.

These communities have been ignored by politicians of all stripes - Labour because they will vote for nobody else, so why bother? and Conservatives for the same reason. Politicians have hid from the problems - they are too many and too difficult - and left communities disenfranchised and disenchanted.

This is part of the reason why we had riots and looting in London this week. A group of people who society had tried to ignore were given an opportunity and took it. That is an explanation, but it is not an excuse. After Saturday, people looted because they thought they could get away with it and they wanted to. We must not forget the livelihoods they willingly and knowingly destroyed. Nor must we forget the people made to feel unsafe in their own homes, afraid that their street would be next. We must not forget that these criminals were callous and destroyed the very communities they lived in.

We must think carefully about how we address the reasons why they are in a position where looting makes sense; but we must not lose sight of the fact that they chose to loot because they thought nobody would stop them or punish them. They must be proved wrong.

The Madness of Blue Labour

Staying away from the furore surrounding Ken Clarke today (a more eloquent defence than I can deliver is available here), let us return to Labour's new intellectual direction, Blue Labour.

It seems we must have an enemy...
All politics is, to an extent, confrontational. It is an exercise in choosing one thing over another, one interest over another. Almost always it requires not only one thing to be good, but another thing to be bad. Here at Liberal Tory, we have endeavoured to avoid defining who we are against, a product mostly of the fact that we disagreed with many on some issues: the Tories on immigration, Labour on the economy, the Lib Dems on constitutional reform.

Now, however, the Labour party have dredged up a train of thought that Liberal Tory cannot help but denounce as insane. Blue Labour stands opposed not only to every liberal value held by Liberal Tory, but also stands in denial of every economic fact mankind has so far discovered.

Swinging left by swinging right
The great brains of the party have come together and concluded that for Labour, "the future is conservative". Blue Labour encourages the party to retreat from its position as a leader of progressive liberalism and instead embrace a narrative of Englishness designed to appeal to working class voters on the right. This narrative tells the poor and the vulnerable that their lives have been broken by others in the outside world. It tells them to cling to their 'culture' and to resist change. It tells them that if only they hold fast to their "imagined" communal identity and rail against the evil world outside that their lives and communities will be made new again.

Frankly, this reeks of dog-whistle politics. Labour is embracing the BNP's narrative and abandoning the scores of voters who do not completely relate to "the popular symbols and iconography of Englishness" of which Blue Labour appears so fond. If, for example, you're not particularly up for singing in celebration of the Crusades and building Jerusalem in this green and pleasant land, Labour ain't for you.

Furthermore, it is a lie. These beliefs are a recipe that will leave communities stagnating in their own misfortune, refusing to accept that as the world changes, everyone must change with it. the Labour party has convinced communities of this before, only to watch them decay and disappear.

Politics for the sake of power
Blue Labour is not only wrong, it exists for a hideous reason. Its proponents do not believe they are right. They have decided it is the only way for them to win power. They have decided not to lead, not to make the case for a free and open England, but to sacrifice their convictions on the altar of high office. This is not behaviour that should be rewarded by the British public.

When parties disappear up their own arses
A quick glance through the articles and papers from Glasman et al tell me one thing. This is not a movement with which I am supposed to engage. It is not for the likes of me. These ideas are meant to be understood fully only by those who have read their Marx. Often, Glasman criticises Blairite reforms as 'managerial'. I am sure this stirs the souls of his academic brotherhood but for the rest of us, it is meaningless. As soon as a party starts to engage in this sort of theorising, it has spent too long in the ivory tower and should, quite frankly, go home.

Red Ed turns Blue - Part I

Wow. Is it me or is Ed Miliband's discovery and endorsement of the Blue Labour movement the single most howl-at-the-moon, batshit-crazy political idea since William Hague's 2001 election to keep the Pound? Is this intellectual train of thought not madder than a bag full of weasels?


And yet, could there be, amidst all the navel-gazing madness, a touch of genius? I think not. However, as a political manoeuvre four years before an election, it may yet bear fruit. 


Today: The sense in it
1. Look at the contributors - James Purnell, David Miliband, David Lammy etc are neither stupid nor bad politicians. A banal point it may be, but it would be unwise to dismiss Blue Labour as an insurrection of mad navel gazing academics.


2. The banking and market narratives - One thing that has hurt Labour over the past year is their inability to escape the dual charge of "you overspent" and "ok, even if it was all the bankers' fault, it happened on your watch". That Blue Labour grapples with this problem is a step in the right direction for Miliband. Furthermore, the British population is not convinced that it was spending by Labour that created the deficit. For every Tory out there, there is someone shouting from the Question Time audience that it is time we strung up the bankers. On top of all this, neither Tony Blair nor David Cameron has been able really to sell the benefits of markets to the British people. If Labour can generate a narrative that accepts and seeks to reverse their failures in financial regulation while also avoiding drifting towards statist interference and punitive taxation, they may yet resonate with the public. Glasman's ideas about democratising economic institutions may provide a framework within which Labour can perform such an act of political Houdinery.


3. Labour's dog whistle - When Ed Miliband writes "it is our families, friends and the places in which we live that give us our sense of belonging," I can see heads nodding around the country. This sort of sentence will speak to voters who feel their economic interests aligned with Labour yet their social beliefs with old-fashioned conservatism. Some of them now support the BNP. Many of them, we are told, are concerned about immigration. While here at Liberal Tory we think anti-immigration arguments are nonsense, they do have some electoral value. If Miliband continues to articulate these ideas, such sentences may prove particularly powerful in opposition to a PM who is respected as a leader by the electorate, but viewed as belonging only in Notting Hill.


4. Time - The collapse of the coalition and a snap election seems unlikely. The task for Ed Miliband is to present Labour as a changed, rethought and reinvigorated political force. A few headlines now about a changing Labour party will do his 2015 election campaign no harm at all.


Tomorrow: The madness of it...