Nick Clegg interview: taxing thoughts

The proposal for a wealth tax was a bit like tossing a stone at a mob of seagulls: a lot of noise, but not much result
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Nick Clegg returned from his family holiday on a Spanish beach at the weekend determined to capture the agenda in the runup to his party conference. His proposal for a wealth tax, made in our interview on Wednesday as the political world began to regroup at Westminster, was a bit like tossing a stone at a mob of seagulls: a lot of noise, but not much result. Yet as the skirl of feathers and cries dies down, the proposal is still lying there. The deputy prime minister's big idea for the second half of the coalition is a tax on the richest members of society as a necessary corollary of the two more years of austerity that the chancellor, George Osborne, is now demanding, and he has set it in the context of social cohesion. There are plenty of reasons to be sceptical about his motives, but he is right that the principle that the wealthiest should pay more tax in order to achieve a more equal society matters, and will matter more and more the longer it takes for the economy to return to growth.

The Lib Dems, however, have a lot of form on proposing wealth taxes, and rather less on delivering them. Vince Cable's aspiration for a mansion tax, which remains a party commitment, was an earlier indication of the overall strategy of shifting tax from income to assets. It was justification for acquiescing in the last budget to a cut in the higher rate of tax from 50p to 45p, which, as Labour argued on Wednesday, is no way to share the burden of deficit reduction. The biggest tax reform the party can claim from its role in coalition is raising the threshold for income tax to £10,000 by 2015.

The party believes it has now established itself with the voters as the party that embedded an idea of tax fairness in the coalition programme – so much so that its slogan for next month's conference is "fairer taxes in tough times". The evidence is less positive. Raising tax thresholds delivers not for the poorest, a third of whom pay no tax anyway, but for middle-income earners in two-income households. In the last budget, another attempt at a kind of wealth tax, trailed at first as a "tycoon tax", led to removing tax relief on large charitable donations. The initiative, attributed to the Lib Dem Treasury chief secretary, Danny Alexander, was abandoned amid a storm of protest from charities and big donors.

So taxing wealth is a lot easier to talk about than to deliver. The simplest and most effective policy would be a revaluation of the property values used to calculate council tax (unchanged since 1991), accompanied by the introduction of a couple of higher bands at the top. Such a policy would also fit the Lib Dems' localist sensibilities. But reports suggest that David Cameron vetoed any such idea at the time of the last budget, and Conservatives are too scorched by the poll tax to have any appetite to reopen the subject. After all, every tax reform creates losers who complain and winners who stay silent (and many of the losers of any updated council tax would be voters in Lib Dem marginal seats such as Vince Cable's). Mr Clegg, it is clear, wants a different kind of wealth tax.

At Westminster, Lib Dems remain loyal to their leader and committed to coalition. When he meets the party activists in Brighton in three weeks, he faces a much tougher audience. Already it is a struggle in some northern cities to find local election candidates. A YouGov poll in Prospect magazine put their support at 10%, down from 24% at the election, and the most cheering news from the polls is that the chancellor is now marginally more unpopular than Mr Clegg. Clearly there is a way to travel to raise spirits. But floating ideas he cannot be confident of delivering is a high-risk strategy, particularly when the failures of coalition – constitutional reforms, tuition fees – so far outweigh the successes.

When three-quarters of former Lib Dem supporters say they no longer know what the party stands for, and there is a significant minority of loyalists who agree, Mr Clegg cannot afford to add to the impression of powerlessness by floating another policy idea that fails to come off.

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