A Liberal Democrat government would raise an extra £15 billion a year in taxes, over and above Conservative plans. This would include an increase of one per cent in all income tax rates, raising corporation tax to 20 per cent and reversing a number of cuts made by the Conservatives since 2015. The party also proposes a far-reaching review of corporation tax.
Summarising the party’s approach on tax, the Lib Dem manifesto states: “Liberal Democrats have a longstanding commitment to fairer taxation, and in government we raised the personal allowance for Income Tax. It remains our ambition to make taxes fairer and simpler, to help those on low and middle incomes, and to ensure that those on the highest incomes, and large international companies, make a fair contribution.”
Tax proposal - Lib Dem costings
|1p increase in income tax||6,345|
|Return Corporation Tax to 20%||3,615|
|Abolish the marriage allowance, £1m IHT threshold, reverse CGT cuts||2,055|
Summary of Lib Dem tax proposals
Taxes on income (inc national insurance)
• An immediate 1p rise on the basic, higher and additional rates of Income Tax to raise £6 billion additional revenue, which would be ringfenced to be spent only on NHS and social care services. (This will be paid by taxpayers in England, Wales and Northern Ireland, and the revenue will be ringfenced for spending on NHS and social care services in England, with the appropriate share also being transferred to Wales and Northern Ireland. This taxation will be neither levied nor spent in Scotland. There will be a commensurate 1p increase in dividend taxation which is a UK-wide tax. The receipts of this will be similarly earmarked, with Scotland also receiving its share.)
• In the longer term and as a replacement for the 1p Income Tax rise, commission the development of a dedicated health and care tax on the basis of wide consultation, possibly based on a reform of National Insurance contributions, which will bring together spending on both services into a collective budget and set out transparently, on people’s payslips, what is spent on them
• Aim in the long term, and as resources allow, to raise the employee national insurance threshold to the Income Tax threshold, while protecting low earners’ ability to accrue pension and benefit entitlements.
• Abolish the income tax marriage allowance
• Raise Corporation Tax to 20%
• Reform Corporation Tax to develop a system that benefits the smallest companies while ensuring the biggest multinationals cannot avoid paying sums comparable to nationally based competitors; consult on shifting away from a profits-based tax to one that takes account of a wider range of economic activity indicators, such as sales and turnover
• Create a new ‘start-up allowance’ to help those starting a new business with their living costs in the first weeks of their business.
• Review Business Rates to reduce burdens on small firms, and make them the priority for any future business tax cuts.
• Support growth in the creative industries, including video gaming, by (among other things) continuing to support the Creative Industries Council and tailored industry-specific tax support
Other personal taxation
• Reverse the Conservative increase in the inheritance tax threshold
• Return Capital Gains Tax to 18% and 28%
• Scrap Capital Gains Tax extended relief
• Conduct a full-scale review into the burden of taxation and spending between generations to ensure that government policy promotes fairness between generations.
Indirect and property taxes
• Consider the implementation of Land Value Taxation.
• Establish a coherent tax and regulatory framework for landfill, incineration and waste collection, including reinstating the landfill tax escalator and extending it to the lower rate, and consulting on the introduction of an incineration tax
• Enable local authorities to levy up to 200% council tax on second homes and ‘buy to leave empty’ investments from overseas
• Remove the requirement to hold local referenda for council tax changes
• Build on the success of the plastic bag charge, with a 5p charge on disposable coffee cups to reduce waste
• Cannabis tax: Liberal Democrats will wrest control from the criminal gangs, take ‘skunk’ off the streets, and protect young people by introducing a legal, regulated market for cannabis
• “We have identified a series of distortions, loopholes and excessive reliefs that should be removed. These include reforms to Capital Gains Tax and dividend tax relief, and refocusing entrepreneurs’ relief.”
• Take tough action against corporate tax evasion and avoidance, including by introducing a General Anti-Avoidance Rule
• Set a target for HM Revenue and Customs to reduce the tax gap, and continue to invest in staff to enable them to meet it; the party has predicted it can bring in £2.5 billion extra a year through anti-avoidance measures
• Lead international action to ensure global companies pay fair taxes in the developing countries in which they operate, including tightening anti-tax haven rules and requiring large companies to publish their tax payments and profits for each country in which they operate
Employment rights and pay
• Modernise employment rights to make them fit for the age of the ‘gig’ economy, looking to build on the forthcoming Taylor report.
• Stamp out abuse of zero-hours contracts. We will create a formal right to request a fixed contract and consult on introducing a right to make regular patterns of work contractual after a period of time
• Strengthen enforcement of employment rights, including by bringing together relevant enforcement agencies and scrapping employment tribunal fees
• End the 1% cap on pay rises in the public sector, and uprate wages in line with inflation
• Establish an independent review to consult on how to set a genuine living wage across all sectors
• Extend transparency requirements on larger employers to include publishing the number of people paid less than the living wage and the ratio between top and median pay
Social security and pensions
• Encourage people into work by reversing the cuts to Work Allowances in Universal Credit, enabling people to work for longer before their benefits are cut (total cost of UC changes: £3.665 billion)
• Let both parents earn before Universal Credit is cut and also reverse two-child policy on family benefits
• Provide 15 hours a week of free childcare to the parents of all two-year-olds in England; then prioritise 15 hours’ free childcare for all working parents in England with children aged between nine months and two years; long-term goal of 30 hours’ free childcare a week for all parents in England with children aged from two to four years, and all working parents from the end of paid parental leave to two years
• Encourage new fathers to take time off with an additional month’s paid paternity leave
• Benefit increases including more generous Carer’s Allowance, abolish ‘Bedroom Tax’, restore housing benefit to 18-year-olds, working-age benefits will return to uprating with CPI inflation, apart from JSA and UC for 18-24-year-olds, which will rise in line with the minimum wage
• Withdraw eligibility for the Winter Fuel Payment from pensioners who pay tax at the higher rate
• Maintain the ‘triple lock’ of increasing the state pension each year by the highest of earnings growth, prices growth or 2.5% for the next parliament
• Establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions, which would be designed to be simpler and fairer and would be set more generously than the current 20% basic rate relief
Fiscal and economic policy overview
• Eliminate the deficit on day-to-day current spending (the cyclically adjusted current budget) by 2019-20
• Allow borrowing for capital spending
• After 2019-20, increase public spending roughly in line with the growth of the economy
• Reduce national debt as a percentage of GDP year-on-year so that it reaches sustainable levels in the medium to long term
• Lib Dem plans mean borrowing £5bn more than government plans in 2018-19 and £14bn more in 2019-20 for current spending. This leads to the cyclically adjusted current budget being in surplus by £9bn in 2019-20 compared to government plans of a surplus of £23bn
• Tax receipts would rise to 37.9% of GDP compared to 37.2% of GDP under Tory plans
• Boost the economy with a £100 billion programme of additional infrastructure investment
Other relevant policies
• Fight to prevent a hard Brexit. When the terms of our future relationship with the EU have been negotiated, put that deal to a vote of the British people in a referendum, with the alternative option of staying in the EU on the ballot paper. Any Brexit deal must ensure that trade can continue without customs controls at the border, and must maintain membership of the single market
• Devolve further fiscal powers to the devolved governments; drastically reduce the number of reserved subjects in relation to Wales
• Introduce ‘devolution on demand’, enabling even greater devolution of powers – including revenue-raising powers – from Westminster to councils or groups of councils working together – for example to a Cornish Assembly or a Yorkshire Parliament
• Expanding the Financial Conduct Authority’s remit to include a statutory duty to promote financial inclusion as one of its key objectives
• Reform the Regulatory Policy Committee to remove unnecessary regulation
• Reform fiduciary duty and company purpose rules to ensure that other considerations, such as employee welfare, environmental standards, community benefit and ethical practice, can be fully included in decisions made by directors and fund managers
• Publish a government anti-corruption strategy.
Summary by George Crozier, CIOT Head of External Relations