Clegg's wealth tax deserves a fair hearing

A wealth tax would be progressive and economically beneficial.

In his relaunch interview in today's Guardian, Nick Clegg calls for a new wealth tax, declaring that "if we want to remain cohesive and prosperous as a society" those of "very considerable" wealth should make an "extra contribution". To which Labour has replied: why did you vote to abolish the 50p tax rate, then? It's a reasonable debating point (the decision to scrap the 50p rate was both politically and fiscally foolish) but it's also rather disingenuous. As anyone who has read any of Clegg or Vince Cable's speeches will know, the Lib Dems have long argued that the burden of taxation should be shifted from income towards wealth (as, indeed, has the New Statesman). There is nothing inconsistent in Clegg calling for a wealth tax while also supporting the reduction in the 50p rate to 45p. You could argue that new taxes on wealth should complement, rather than replace, those on high incomes (and you'd be right), but this shouldn't blind the left to the merits of Clegg's intervention.

In Britain, wealth is concentrated in even fewer hands than income and represents a huge untapped source of government revenue. If taxes on income are to be reduced, as they must be (if one includes National Insurance, the effective starting rate is 32%), either through a significantly higher personal allowance or through a reduction in the basic rate, then taxes on wealth should be increased. As Clegg states:

In addition to our standing policy on things like the mansion tax, is there a time-limited contribution you can ask in some way or another from people of considerable wealth so they feel they are making a contribution to the national effort? What we are embarked on is in some senses a longer economic war rather than a short economic battle.

Taking their cue from John Stuart Mill, the Lib Dems rightly argue that the tax system should do more to reward merit, enterprise and innovation. As Cable put it in his essay for the New Statesman on reclaiming Keynes, taxation should be diverted away from "profitable, productive investment" and towards "unproductive asset accumulation". Wealth taxes are harder to avoid than those on income and, as a recent OECD report noted, they benefit the economy by shifting investment away from housing and into wealth-creating industries.

For now, Clegg's proposal raises more questions than it answers. Most obviously, at what rate and threshold would a wealth tax be set? But the details, we are promised, will be filled in by the time of the Lib Dem conference next month. What one can say with certainty is that, as Jonathan Portes puts it, it is both "good economics and fiscally progressive" to sharply increases taxes on the wealthy. By all means assail Clegg for his support for the government's disastrous economic strategy and its punitive welfare cuts, but don't ignore the fact that the most creative thinking on taxation is taking place in his party.

Deputy Prime Minister Nick Clegg said that those of "very considerable" wealth should make an "extra contribution". Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.