How the tax and benefits system should be structured has been a hotly contested issue in liberal circles over recent years. The IFS today released a study commissioned by the Mirrlees review of the British tax and benefit system.  The FT picked up on one aspect of the story - that a higher tax band of £100,000 plus is unlikely to raise much, if any, revenue ('Targeting rich will not work, says study').  However, the study is much broader and a better summary can be read in the IFS's own press release.

We're still going through the detail in the report , but its interesting how much the ideas seem to dovetail with our own work on welfare issues which can be read in 'Working on Welfare' on the CentreForum website.

Also in today's news

If you thought the Labour party might be in crisis, read Jackie Ashley in The Guardian today who will confirm all your suspicions. In her article, 'If the rebels prevail, Brown could be ousted in days', she maps out the terrible consequences for Gordon Brown of the 10p Income Tax rebellion.

"The Tories, it seems, will line up with an amendment from Labour's Frank Field to insist on a compensation package for those who will be worse off under the new tax rates. If Labour lost that vote, it would be all up for the prime minister."

The whole piece is well worth reading.  It seems amazing that one of Brown's strongest supporters should be so negative.  The likely explanation comes towards the end of the piece:

I am 100% against the official government view and, with every instinct, on the side of the Labour rebels. But disaster is looming and the real parliamentarians have carefully to weigh in the balance what they now do, and ask how much likelier it will make a Tory landslide a year hence.

So in actual fact the whole piece is really a message directed at troublesome MPs, and those that goad them on, to be loyal.  However, the fact that a commentator has to paint such a lurid picture of destruction in order to pull them back from the edge shows just how bad things are at the moment.

The commentariat are agreed: Alastair Darling has done a 'smash and grab' raid on David Cameron's policies to win back the affection of middle England.

Virtually all the papers write the same thing and make their own judgements.  Some think it shrewd, some think it dangerous, but are they all wrong?

When you consider the big changes - it is the Lib Dem policy package, not Conservative which the Chancellor has most closely followed.

• Ending taper relief on Capital Gains: Lib Dem policy
  
• Taxing flights not passengers: Lib Dem policy
• Raising Inheritance Tax thresholds to £600: Closer to the Lib Dem policy (based on a threshold of £500k) than the Conservative proposal (based on a threshold of £1million.)
• Non Doms: Government now consulting on Lib Dem suggestions such as limiting the time period allowed for Non Doms.
  

A triumph therefore for the Lib Dem policy process - but no coverage (with the exception of a small piece on the BBC ('Darling 'using Lib Dem air tax'' who are legally obliged to cover all parties)

The Lib Dems do best when they get coverage.  With the party at the lowest ebb in the polls for a long time, it is worrying that such a policy triumph has managed to go completely ignored in the papers.

Also in the news

On the same subject, but with a different take, is Will Hutton in The Guardian ('Spend it like Gordon').  He argues that both Labour and Tories are pitching for right-wing tax plans with left wing spending commitments.

"Apparently, both main parties are united in a consensus that if they are to champion the aspirations of the British, they must cut taxes on the wealthy while maintaining a social-democratic approach to spending. This corresponds to no coherent political philosophy of either left or right. In this respect, Cameron and Osborne have no more fixed ideological compass than Brown and Darling do.

"The odds are that Labour’s (poll) advantage will be restored shortly. But that advantage will be maintained only if the Prime Minister and Alistair Darling, the Chancellor, neutralise the inheritance tax question."

So says Tim Hames in today's Times ('It's time for the last rights over inheritance tax').

It's difficult to disagree with him.

George Osbourne's pledge has certainly captured the voters' imagination far more than it should. As Hames goes on to points out, the impact of the policy would have been felt by very few people:

But Peter Preston in The Guardian agrees in (the slightly mis-titled) 'Care in the afterlife'

It seems then that the inheritance tax debate has now opened. The treasury's reaction to it will perhaps be the most lasting outcome of this conference season's political shenanigans.

Taxing the rich and bringing back the poll tax may initially appear anathema to modern conservatism- yet combine these ideas into a policy and that it is exactly what Mr Osborne has done. As Gabriel Rozenberg writes in the Times

http://www.timesonline.co.uk/tol/news/politics/article2570516.ece

The Conservatives’ plan for taxing UK residents who are non-domiciled for tax amounts is an odd straitjacket. On the one hand, those “non-doms” who are not especially rich can opt into the British tax system and avoid the levy entirely. At the other end of the scale, the Roman Abramoviches and Lakshmi Mittals will barely notice a £25,000 charge.

Yet between these two extremes sit a range of foreign workers lumbered with a pseudo regressive  poll tax. Whilst they may find themselves giving less to the state as they become wealthier, the converse is also true. If they suffer a drop in income the state will extract a larger portion of their wealth. That said “non doms” do not play well on the public sympathies, the nurse’s position in the public hearts looks unperturbed by the moderately wealthy “non dom.”

As Rozenberg asserts there are attractions to Osborne’s proposals:

There is no doubt that the non-dom regime is ripe for overhaul, and this proposed levy will have the advantage of being easy to collect.

However the “non dom” regime may not be the most stable foundation for a centre piece of fiscal policy. The source of this instability is the fact that no one seems to know exactly how many “non doms” there are and how they will respond to the Conservatives’ measures. Even if the Conservatives’ count of “non doms” is correct a further problem may lie  ahead. Contrary to popular opinion the toys of the “non doms” often do not contain a football team or even a yacht. The reality is they will notice a £25,000 charge and may choose to avoid it. The consequences of this scenario to the Conservatives’ tax proposals could hardly be more dangerous. As Rozenberg asserts, the one certainty of politics is that of unintended consequences. For the shadow chancellor this could mean;

if you set out to tax foreign residents to pay for first-time buyers, you are likely to end up with fewer foreign residents and a lot more first-time buyers.

Kids are lonely and unhappy, fat and bullied. Half don’t eat breakfast, a third of under-16s regularly drink, nearly four in ten 15-year-olds have had sex. About 4,000 or 8,500 children (depending on which spokesman you were listening to) were admitted to hospital with alcohol-related illness, some 630,000 prescriptions for antidepressants are handed out to children annually and 11.2 per cent of girls self-harm. http://http://www.timesonline.co.uk/tol/comment/columnists/alice_miles/article2577790.ece

The Conservatives' less than sanguine view of childhood! Even David the optimist Cameron would be hard pressed to see much positive amongst this salvo of failings. The Conservative solution to this crisis of childhood-more outside play. As Alice Miles in The Times puts it The Conservatives’ childhood agenda has shrunk from revolution to roundabouts. Well almost, there is another Conservative response, which is to reward couples with children with extra tax credits. As Alice Miles argues Cameron’s conservatives have marshalled this proposal towards a caricatured problem of the government’s policy. As with most caricatures the version is less than entirely accurate.

It is not the case that couples who stay together are penalised and paid less in working tax credits than lone parents, an error parroted by people who are too well paid to know. Both families get the same. The Tories have been using a grossly misleading comparison, first cited by the Labour MP Frank Field, to back up their case. Mr Field has said that a single mother working 16 hours a week, after tax credits, gains a total income of £487 a week, but a two-parent family earning the minimum wage has to work 116 hours to gain the same income.

Unsurprisingly the Conservative’s inaccurate diagnosis of the policy has blunted the effectiveness of their remedy.

The only problem addressed by Mr Cameron’s policy is this: if you are a couple with children living together, but you lie about the fact, then you are up to £1,700 a year better off from the working tax credit, as one of you can claim a lone parent top-up. This encourages people to lie about their living arrangements when they claim the tax credit. So Mr Cameron wants to offer the extra £1,700 to couples with children who admit to living together. That’s it. At most it will stop some low-earning couples who live together but lie about it from lying about it in future.

See? It doesn’t make any sense as a “boost for marriage”. You don’t have to get married to be eligible. And if you are already married, well, you don’t need the encouragement then, do you? You’re just being given an extra £30 a week. Nice, but why? If you want to raise children out of poverty, as the Tories claim, then putting extra money into working tax credit for couples is about a third as effective as putting it into more child tax credit for all children, according to the Institute for Fiscal Studies.

So why when there are more effective policy tools have the conservatives stuck to the guns-in a word symbolism. As Miles recognises the policy signifies that Tories believe in two-parent families. In short it might not be the most efficacious policy, but it does chime with the Tory faithful.

Yet again the colossal scale of city bonuses is back in the news, with the Guardian reporting that this year they have reached a mind-boggling £14 billion ("City bonuses hit record high with £14bn payout"). Immediately George Monbiot is on the case ("How the neoliberals stiched up the wealth of nations for themselves"), claiming that such inequality is part of a broader capitalist agenda blamed for everything from mass homelessness to the breakup of the welfare state.

In fact these issues may not be as related as Monbiot suggests. While huge bonuses do seem somewhat obscene, the media furore surrounding them obscures two more important points. The first is that in terms of social breakdown, the gap between the super-rich and the average is far less important than the gap between the average and the super-poor. The second is that, while huge bonuses do not in themselves take money away from the less well-off, the failure to tax them does.

Thus the more important issues may be those of tax evasion and, particularly topically, corporation tax. This is brought into sharp relief by today's FT's leader, "A third of UK's biggest businesses pay no tax ". Not only is corporation tax ineffectively enforced - it is spread out inequitably between companies, failing to incentivise or reward socially beneficial practise. Moreover, an oft-overlooked area in which greater international co-operation is needed is the fight against tax evasion, with tax havens draining money away from the countries in which the wealth is created. Admist all of this, the true obscenity looks like the Conservatives' recent plans to actually lessen corporation tax.

Thus social evils cannot all be put down to the simple existence of the capitalist system. To decry the high-earners from the sidelines for their moral depravity won't help anyone on the ground. We must accept that of course business and its high-earners will be self-seeking and profit-driven, but find more efficient ways to harness that profit for the public good by taxing it more effectively.

Also in today's news:

• Nick Clegg has been previewing the Lib Dems immigration debate to be held in Brighton this autumn. ("Call for selective amnesty for illegal migrants')
• Lembit Opik has been arguing that his appointment Shadow Department for Business, Enterprise and Regulatory Reform Secretary does not mean that the Lib Dems don't take the subject seriously. ("Opik says UK Lib Dems serious about business")
  

Or was it? After yesterday's initial scandal-mongering, some semblance of rationality seems to have return to most of the broadsheets. Least surprisingly, Polly Toynbee rails valiantly against the right-wing press (The Tory tactic is simple - get low down and dirty), accusing them of whipping up a scandal in order to serve the Tories' electoral interests:

"The Tory tactic is simple: demolish what they see as Labour's great asset - Gordon Brown's record and character. Fairly or not, Tony Blair's character has been shot to pieces on the streets of Iraq, in the White House rose garden, in holiday villas, his wife's lecture tours and in cash for honours, even if charges are never brought. Brown offers a marked contrast in style and content."

In the Independent, Steve Richards (Gordon Brown's main worry should be that this non-story has run with such ferocity), not for the first time, offers a cool-headed and unsensationalist analysis:

"The current row is over nothing in the sense that nothing of significance has surfaced in recent days. In the 1997 Budget, Brown scrapped the tax credits on payments of dividends to pension funds. This was known at the time and caused a fuss in the immediate aftermath."

Of course civil servants warned of the consequences of a cut in pensions tax relief - that is what they do. Treasury officials are there to advise of the effects of a change in policy, but it is up to the minister to make the final decision. The fact that he took the decision despite some potentially negative consequences is barely worthy of column inches.

Even in the Times, who originally "broke" the story, there is a sensible reaction from David Aaronovitch (I'm afraid Brown's not as black as he's painted), who considers Brown's biggest mistake to be the lack of discosure, rather than the actual policy. Indeed, he argues, the revenue earned by abolishing the tax relief may actually have done some good. Addressing an elderly reader, he claims:

"this five billion a year, I don’t think he spent it all on wars and speed cameras. A lot of it will have helped, in the early days, to reduce government borrowing. Some may have contributed, say, to the radically reduced orthopaedic waiting times now enjoyed (if that’s the word) by your generation. Maybe someone you know got a hip? Is it also conceivable that the money helped to fund the reduction in corporation tax, thus assisting in the creation of jobs."

However, judging by the comments to this piece, few Times readers would agree with his analysis.

I mentioned at the beginning that "most" broadsheets have offered some semblance of rationality. With tiresome predictability, the Telegraph continues to rouse rabbles in its own inimitable way (The plot thickens over pensions fiasco). Without a hint of hyperbole, it claims:

"This Government has been responsible for a number of bad policy judgments, but Gordon Brown's decision to change the rules for tax relief on pension funds is in another league from most of its administrative or political mistakes. It is no exaggeration to say that it has ruined the lives of many people who had every reason to believe that the pensions to which they had been contributing throughout their productive years would provide them with security in their retirement. Removing £5 billion a year from the value of funded pensions must have seemed at the time to be the perfect stealth tax: no one would notice (until much later) that their private or occupational scheme would no longer provide them with the income they needed to survive in the last years of their lives."

My biggest quibble with this is the suggestion that removing tax relief on pensions is a policy mistake that surpasses any other. That it will have more disastrous consequences than, oh, say, the war in Iraq, growing income inequality, the complexities of the tax credit scheme, the loss of civil liberties etc. is simply preposterous. The Labour government has made far worse policy mistakes during the last 10 years - could we not focus on those instead please?

Also in today's news:

• The Independent publishes its "poll of polls" that shows the Tories opening up an 8 point gap ahead of Labour. The Lib Dems are unchanged on 18%. Cameron only needs another small advance to deny Labour the option of forming a pact with the Lib Dems to retain power (Independent).
  
• The Guardian reveals that the RAF has considered the use of "suicide flights" to combat terrorism (Guardian).
  

My, the Telegraph is really sticking the knife in these days. Sir Menzies is the first target (Ming's problem isn't age: it's Ming himself):

"Sir Menzies Campbell does not lie about his age, but I suspect that he would if he could. At a reluctant 65, he comes across like a headmaster at the school disco, ever ready to jackknife his knees and start doing the twist, just to show everyone how square he ain't."

But, we are assured, Ming is still the best man for the job, in a superbly backhanded compliment, he is:

"surely a better bet for the Lib Dems than some of the ragbag at Harrogate last week; troubled folk with a range of issues that include alcoholism and that difficult matter of homosexuality within heterosexual marriage."

But it didn't stop there. In a splendidly titled article, Why Conservatives must stand up for the deserving rich, Simon Heffer lambasts Vince Cable's most recent tax proposal:

"In his capacity as the Lib Dems' Treasury spokesman, Dr Cable gave the lie to the notion that there is no scope to tax the British people further. He advocated a one per cent tax, levied annually, on what he called "obscenely large" property investments... in the happy little world of the Lib Dems, the sort of "obscenely large" property investment that will attract this annual one per cent tax starts not at £84 million, nor even at £35 million, but at £1 million. This means that, should your house be worth £1 million, you will pay the Exchequer an annual sum of £10,000 a year out of your already significantly taxed income. This is what, for want of a less accurate name, we call a wealth tax."

Like Mr Heffer, my first reaction to this announcement was one of disappointment. I've always admired Cable as an economist and a policymaker, and the Lib Dem's tax policy is one of its most commendable. Nevertheless, this latest proposal for, effectively, a wealth tax has given me cause for doubt. The Lib Dems have always stood for economic equality - a progressive tax system to benefit the worst off in society. However, a wealth tax, or a property tax, goes against this principal. Ignoring, for the moment, the distortionary effects such a tax would have on the property market, we should consider the "asset-rich, income-poor".  A minority of householders, to be sure, but a £10,000 annual levy on one's property is significant to those with even median incomes. At first glance, this feels like a snap attempt to redress any redistributive tendencies lost by the abandonment of the 50% top rate of income tax.

However, first impressions can be misleading. Digging a little deeper, Cable's motives are a little more laudable. The proceeds, an estimated £1 billion, would be used to cut inheritance tax and stamp duty. Inheritance tax has always been a bit of an anomaly - intended to redress the perceived inequity of large bequeathments, it actually has a surprisingly regressive impact. Those it attempts to tax, the very rich, are those wealthy enough to afford expert advice, and thus avoid paying the tax. It is those on middle incomes who are most affected.

Despite these admirable motives, I am inclined to stick with my first impression. A wealth tax, whatever its intentions, is inequitable, unjustified, and deeply unpopular. I am, however, happy to be converted.

• Trident: 100 Labour MPs to revolt (Independent); the rest want answers (Guardian)
• Home Office to implement tough new immigration enforcement measures, including texting (Guardian)
  

Tax is still head-lining the opposition parties' policy agendas.    Predictably, the FT goes into greatest depth (unless you go to the Conservative's website itself to read the whole thing). 

Even the FT likes to jazz up the story with a process piece about the material being released onto the Conservative's website too early, allowing Ed Balls to get his rebuttal in before the report had even been launched; The Independent focus's on David Cameron's presentation of the piece ("Cameron rejects party's call for £21bn package of tax cuts")

However, The Times manages to get everything into the one story:

"The detailed 176-page study, which was accidentally put on the party’s website the day before it was due to be published, shatters the Conservatives’ uneasy truce on taxation.

The party leadership has been rejecting calls from rightwingers for tax cuts in order to shed the party’s image of being obsessed with the issue and to re-establish its economic credibility. Fears about Conservative tax policies have cost the party dearly in the past two elections."

Anthony Browne - The Times

Also in today's news

• "Mystery over slurring Charlie" - The Sun
  Also covered in The Telegraph and The Mirror

• PMQs sketch - The Telegraph:
  "as far as Iraq is concerned, it is the Ming emperor who holds the moral high ground. Not for nothing has he spent the greater part of his life, after youthful frolics as an Olympic athlete, among the mandarins of the Foreign Office, joining them in their rapt contemplation of the higher truths of international relations.

  
  "These truths include the inadvisability of invading sovereign countries, even when they happen to be run by very nasty people. Mr Blair had no time whatever for the wisdom of the mandarins, which stood between him and his mission to make Mesopotamia a paradise on earth."
  

THE Liberal Democrats’ tax package would have been described, and dismissed, as “bold and courageous” by Sir Humphrey Appleby in the Yes Minister series. Or, as Robert Chote of the Institute for Fiscal Studies put it at a fringe meeting at the Lib Dem conference, “the potential losers will be disgruntled and many of the potential winners may be unconvinced”.

Peter Riddell - The Times