The Liberal Democrats are considering a property-based tax despite fighting the next election on their plans to replace the council tax with a local income tax.
Vincent Cable, the party's treasury spokesman, confirmed that in the long term, the local income tax could be replaced by a new property-based tax to take account of rising land values.
Adopting a local income tax to take account of rising house prices could lead to much higher taxes on middle-class families who have seen the values of their homes soar over recent years. The local income tax is intended to avoid penalising elderly people on low incomes who remain in large houses after their families have grown up and left. At the moment, many struggle to pay high council tax bills. Linking the system to land values could undermine that goal.
"In the very long term it would be very sensible to move over to a system where you incorporate land values into a tax system. It is very complicated and we are not putting it forward as a proposal for the next general election," Mr Cable said. He added that it would be a replacement for the local income tax, rather than in addition to it. "We recognise the basic economic logic of trying to incorporate land values in the tax system. In the long term it may be possible to devise a better system. That may be in 20 years time," he told BBC television.
Mr Cable also said that the effective standard rate of income tax could be 24p when the local income tax was introduced, in spite of the Liberal Democrat plans for a reduction in the basic rate of tax from 22p to 20p in the pound.
"The national average for local income tax would be something of the order of 4p," he said. "Of course, they wouldn't pay council tax so they would be significantly better off. You would have to earn something of the order of £70,000 a year as a family before you would be worse off."
Mr Cable warned his party's supporters that they faced "tough choices" over cuts in public-spending priorities as part of a radical package of tax measures endorsed by the party on Tuesday.
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