Clegg - The tax system should reward effort (Sutton Borough Liberal Democrats)

Clegg - The tax system should reward effort

January 26, 2012 9:24 PM

My philosophy on tax is simple: The system should reward effort, enterprise and innovation and bear down on those things which are bad for our society.

That sounds like a proposition with which most people would agree. But attitudes to tax are a good proxy for our deepest political instincts. And the three major political traditions in the UK - conservatism, socialism and liberalism - have very distinct approaches.

Nick Clegg For those on the philosophical right, taxes are necessary but there is an understandable fear that tax-done-badly can threaten entrepreneurialism and business, strengthening the hand of an intrusive state. That wariness means the right can be less inclined to promote tax as a way of redistributing wealth and opportunity, putting less of an emphasis on using the tax system to tackle inequality, for example, between those who earn their income and those who are asset rich.

For the traditional left, on the other hand, taxes are the principal means of redistribution. Socialists will support a penal rate of tax on the highest earners, simply because it makes them poorer.

For them, tax is a badge of socialist success: the more, the better. They would rather draw money in through the state and then hand it back to people rather than letting them keep more of their earnings in the first place.

The liberal approach, put most simply, is based on a profound commitment to the value of paid work.

Citizens are empowered when they can keep the fruits of their own labour. As Gladstone said, it is better for money to 'fructify in the pockets' of the people who earn it, rather than in the Treasury and fiscal liberalism supports taxes on unearned wealth, precisely to lighten taxes on the wages of the hardworking.

In developed economies around the world, in every country now seeking to get back on the right path, where money is scarce, where every day families are tightening their belts, the biggest question we face is this: how is that burden shared?

That's why, this week, we heard President Obama devote his State of the Union Address to greater fairness in the American tax system. It's why tales of tax avoidance are filling our newspapers everyday. And every politician now has a simple choice: do you support a tax system that rewards the hard-working many? Or do you back taxes that favour the wealthy few?

I know which side of the line I stand on: The UK's tax system cannot go on like this, with those at the top claiming the reliefs, enjoying the allowances, hiring other people to find the loopholes, while everyone else pays through the nose.

So the Coalition is calling time on our unfair and out-of-whack tax system.

We've put up Capital Gains Tax, ending the scandal, under Labour, of a hedge fund manager paying less on their shares than their cleaner paid on their wages.

We've reduced tax breaks on pension funds for the very rich.

We've clamped down on avoidance and taken steps to raise an extra £7bn through closing the tax gap.

And our priority in Government, from the front cover of the Liberal Democrat manifesto to the pages of the Coalition agreement, is freeing the lowest-paid from income tax altogether and cutting income tax for millions of ordinary workers.

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