Lib Dem Conference 2020: Party backs Universal Basic Income

New leader, new conference experience

The conference was a launch pad for the Liberal Democrats’ new leader and an opportunity for members to pick themselves up after a tough year and start revisiting the party’s policy offer to voters. While the new leader, Sir Ed Davey (pictured thanks to Parliament UK), has an economic policy background, the conference saw relatively little economic policy development – the notable exception being the adoption of policy supporting a Universal Basic Income (UBI).

The Lib Dems’ spring conference, planned for mid-March, was one of the first events to fall victim to coronavirus, being cancelled just a few days before. The party has spent much of the intervening six months planning how to take the (longer and bigger) autumn conference online. This work shows, with the party using the ‘HopIn’ platform to put on an experience about as close to an ‘in person’ conference as it’s possible to get in the era of Covid-19, featuring not just online speeches and debates (as at Labour) but networking, virtual exhibition stands and – most notably – policy votes. The reaction of members attending– who joined and voted in significantly larger numbers than at a typical physical conference – was overwhelmingly positive about the experience, barring a few minor technical hitches.

A lot has happened since the party’s last conference – a general election, at which the party fared disappointingly; Brexit – which the party had fought hard against; a new leader – after the previous one, Jo Swinson, lost her seat; and of course coronavirus, which has provided added disruption to the party’s policy processes. In the circumstances it is not surprising that, while party members did debate and vote on policy motions, there were fewer motions than normal (just 12) and most of them did not break much new ground for the party. The two motions to garner the greatest excitement covered UBI and policy on Europe, both of which are covered below. For the first time in 10 years there was not a motion at the conference establishing new tax policy in any area.

Ed Davey was the party’s lead economic researcher before becoming an MP, and served as a party Treasury spokesperson on a number of occasions, so he is no stranger to tax and broader economic policy. As researcher he claims a share of the credit for the party’s famous ‘penny on income tax for education’ policy back in the 1990s. As the party’s shadow chief secretary in 2000 he wrote a paper on the role of MPs in Budget scrutiny (see below). As Treasury spokesperson in the run up to last year’s election he will have a sense of ownership over the party’s economic manifesto policies, so we should not expect too much in the way of radical changes from these – admittedly already quite radical – proposals (again, see below).

Tax rises? Maybe in a year or two

The Lib Dems are part of the current political economic consensus which says that, notwithstanding the scale of the current government deficit, it would be unwise to raise taxes while the economy remains so weak as a result of coronavirus. But the party does see tax rises down the road, perhaps before the end of this Parliament.

Ed Davey trailed his economic plans in only the broadest terms during the conference, emphasising the principles of fairness and opportunity, and the need for a focus on retaining jobs and greening the economy (see below for more on both). He had been more expansive in July, when he was questioned during a leadership election economic policy hustings, saying: “I think tax rises in a year or two need to be considered. They partly need to be considered because we need to finance a big increase in public spending on public services, and that has to be paid for.” He added that it was also about reforming taxes, in particular to rebalance between small business and multinationals.

Which taxes should rise? Broadly Davey continues to stand behind the policies in the party’s manifesto from last year (unsurprising given his role in pulling them together). These include higher income tax and capital gains tax, and a number of measures to get more tax out of large multinationals, especially the tech giants (again, see below for more).

Personal taxation – income and capital gains both in the party’s sights

During the leadership election over the summer Ed Davey said that he thought the party’s policy of raising each rate of income tax by 1p to increase funding for the NHS and social care should remain, and advocated taxing capital gains through the income tax system (another existing policy).

He explained his support for the latter at a leadership hustings: “A capital gains tax increase where people who have got loads of shares, who are very wealthy, they don’t get the benefit of an income tax allowance and a capital gains tax allowance. It seems to me wrong that the wealthiest should get the benefits of two tax allowances when those of us [who are] mere mortals don’t have those two allowances. So I think there is a case for reforming capital gains tax.”

The Lib Dems do not back a ‘wealth tax’ as such. Leadership candidate Layla Moran said it was something “we are probably going to have to look at” during the hustings, but Davey steered clear of the topic. The party does, however, already have policy (passed in 2018) in favour of turning inheritance tax into a progressive large gifts tax, abolishing capital gains forgiveness at death, and introducing a flat rate of relief on pension contributions. The party also favours, in the short-term, additional, higher, council tax bands, with long-term consideration of replacing council tax with a percentage-based annual property tax.

Universal Basic Income

Potentially more significant for people’s wallets than any of these tax policies could be the party’s new policy of supporting a Universal Basic Income (UBI), passed by a margin of nearly three to one (715-250). This is by far the most significant economic policy development of the conference, though quite how significant will depend on the level at which the party ultimately seeks to set the UBI payment.

Proposing the motion, party member Adam Bernard from Harrow focused his case on the conditionality of the existing social security system, characterizing the current government policy as: “we’ll help you if you’re poor, but only if you’re the right kind of poor. Prove you’re disabled enough. Jump through all the right hoops. That is conditionality and this motion says we’ll get rid of it.” The failures of Universal Credit were frequently cited by UBI advocates, with an emphasis on people falling between the cracks of the welfare system and coronavirus support. Potential benefits of UBI for mental health, financial wellbeing, boosting people’s confidence and for carers and caring in particular, were all put forward by the motion’s proponents.

Opponents of the motion generally supported the principle of UBI but doubted it could be made to work financially. It would either be so low as to be insignificant or so high as to be unaffordable, was the broad claim. One speaker argued it would be ‘extremely hard not to have losers down the income scale’ from UBI. Another argued that the policy should instead be one of a ‘minimum income’, set at perhaps 60 per cent of the median income, which would avoid giving additional money to people who do not need it.

The policy had – perhaps surprisingly given its previous rejection – the support of the party leadership. Both Ed Davey and Layla Moran had advocated it during the leadership election. Davey noted that he had written a UBI policy for the party back in 1990, when it had been called a ‘citizen’s income’. New Treasury spokesperson Christine Jardine spoke during the debate in favour of the motion.

What does the motion commit the party to? It is actually fairly unprescriptive, committing the party to campaign for a UBI paid to all long-term UK residents, funded in a ‘socially just and equitable manner’, implemented based on the best available international evidence, rolled out in a phased manner and streamlined and integrated with other necessary income support mechanisms including pensions and student living cost support. It sets the party’s Federal Policy Committee the job of working out the details. These ‘details’, which include the level at which the payment would be set, are obviously quite substantial.

There is also the question of how a UBI would be paid for. While it would almost certainly entail some tax rises – at the very least to claw back the payment from those deemed not to need it – Davey has another idea as well – a sovereign wealth fund. He explained it on the leadership hustings: “The government has lent a lot of money to businesses across our economy. Many of those businesses either won’t be able to pay that money back, or will struggle to pay it back and it will be a millstone around their growth. I think we should say to them: you have the option not of paying it back but of giving us, the taxpayer, the people of this country, shares in your business. And we will put those shares in a sovereign wealth fund, and the income coming from those shares over the years will build up to help pay for a universal basic income.”

Business taxation – radical changes still on the table

In his leader’s speech Ed Davey emphasised the need to listen to business voices when dealing with the challenges of Covid, Brexit and climate change. The party’s policy on business taxation got a major overhaul a year ago, and has not changed visibly in the period since, beyond the party’s wish not to raise taxes while the economy remains so weak.

Last year’s conference backed a paper setting out radical changes to corporation tax, including restrictions to reliefs, a boost to capital allowances and extending the tax to cover highly profitable partnerships and other unincorporated businesses (while rebranding it as British Business Tax). The paper also called for the UK to work with other major economies to develop an international system of business taxation with a global minimum rate of tax on profits.

During the leadership election Davey once again turned the spotlight on perceived underpayment of tax by digital multinationals, arguing for “closing those loopholes on those multinationals. I think big tech has got away with not paying its fair share of tax for example – the Googles, the Facebooks, the Apples. And we need to be tougher on them.” At the general election the party advocated reforming place of establishment rules to stop multinationals unfairly shifting profits out of the UK, increasing the Digital Services Tax and supporting and building on the OECD’s proposals to tackle Base Erosion and Profit Shifting (BEPS).

Another priority area for the party continues to be local business taxation. “Business rates is a disaster for small business,” said Davey in July, advocating its replacement with a land value tax, again something the party put forward at the December election (calling it a Commercial Landowner Levy). The party also argued for restoring the 20% rate of corporation tax at last year’s election, though this seems to have been downplayed since. In part this probably reflects that the Conservatives, by not reducing corporation tax to 17% as planned, have reduced the significance of this proposal by two thirds.

During the leadership contest Davey asserted the Lib Dem claim for the hotly contested title of the ‘natural party of business’ emphasising: “We are a party who understand enterprise. We understand free trade.” Counter-intuitively, he thought that Labour’s move towards the centre-ground could increase business support for the Lib Dems. The party would have got a lot more support from business people at the last election had they (especially ‘Tory remainers’) not been scared off by fear of letting in a Corbyn government, he argued.

Europe – au revoir but not adieu

Having fought the general election on a platform dominated by stopping Brexit, the Lib Dems have decided to put the question of the UK returning to the EU on the backburner for now, focusing the party’s voice and campaigning on the more immediate question of what kind of relationship we have with the EU once the transition period comes to an end at the end of the year.

The motions passed by party members calls for the “closest possible alignment between the UK and the EU towards customs union, single market and freedom of movement, including minimising tariff and non- tariff trade barriers, no lowering of environmental, food and animal welfare standards, and the maintenance of strong diplomatic, developmental, defence, security, judicial, educational and scientific cooperation.” There was little controversy over this and debate focused on whether or not the party should argue and campaign for the UK to rejoin the EU.

The initial policy motion put to the conference proposed merely “to keep all options open for the UK’s future relationship with the EU, including membership at an appropriate future date to be determined by political circumstances, subject to public assent, market and trade conditions and acceptable negotiated terms.” Significant numbers of party members were unhappy with this and proposed an amendment stating the party would “continue to make the case for UK membership of the EU, and… campaign to rejoin the EU after the post-Brexit transition period ends”. Ultimately, after a passionate debate, this was rejected in favour of a compromise amendment (backed by the party leadership who had seen the unhappiness the initial wording had caused) which supported “a longer term objective of UK membership of the EU” (subject to the conditions set out above), thus maintaining the party’s policy of favouring EU membership, while not requiring them to demand a fresh referendum in the immediate future.

During the leadership campaign Ed Davey referred to the increased cost of trading across borders from 2021 as a ‘Brexit tax’. “Those people who export… who are going to face all those problems at the borders, all the costs of business, the £7 billion Tory Brexit tax – the administration forms at the borders – when those exporters see that tax on them every single year they’re going to want to know which party wants to get rid of that.”

Environment – party members consider case for a carbon tax

Combating climate change is at the heart of Liberal Democrat economic policy, as witnessed by the party’s launch of a ‘£150 billion green coronavirus recovery plan’ in June. But as things stand, while the party has a number of green tax proposals, tax is not central to their environmental plans. However a fringe debate at the conference explored whether a more far-reaching carbon tax should be considered, and further work in this area is planned by the party’s policy committee.

A motion passed at the conference on ‘A Green Recovery from the Covid-19 Pandemic’ reaffirmed the party’s pledge to cut greenhouse gas emissions by 75 per cent by 2030, and achieve net zero emissions by 2045 at the very latest. It sets out plans for creating green jobs, refocusing Treasury spending on to green projects and infrastructure, and ensuring that support packages for businesses recovering from the impacts of lockdown include, where appropriate, legally binding commitments to reduce emissions. It did not include any tax proposals.

A debate on carbon tax organised by the Green Lib Dems heard from a number of experts about the problems with some existing measures such as the EU’s emissions trading scheme (lots of polluters being given big allowances). Much discussion centred around the recent paper from the (non-partisan) Zero Carbon Commission, which advocated a trajectory to an economy-wide £75 a tonne carbon charge by 2030. The reason that the commission favoured tax over a trading system was that a long-term price trajectory can give business more confidence to plan, explained one speaker. The main area of concern about a carbon tax was the likely regressive impact on households, without compensatory measures.

The chair of the party’s climate change working group, Duncan Brack, noted that the paper adopted by the party in 2019 had contained a big section on greening taxation. This had included graduating Stamp Duty Land Tax by the energy rating of the property, reducing VAT on home insulation and reforms to vehicle taxation through VED and VAT on electric vehicles. Though the bulk of the paper was about regulation, the party had not shied away from the tax route, said Brack. He also addressed the issue of border tax adjustments – rebating tax at point of export and applying it at point of import – saying that while in theory these were a nice idea there are huge practical problems, in needing to know how much carbon is embedded in every processed product and commodity as well as the sources of the energy used in extraction and processing. You would need to know the carbon intensity of every company and these are not static. In practice you’d have to focus on the most carbon intensive imports – heavy machinery etc – he judged.

Following the passing of the paper last year the party’s Federal Policy Committee agreed to do some work on the issue of a carbon tax. “Given the urgency of the climate crisis…, we would review the potential for the more consistent application of carbon pricing in the UK,” they said. The committee will start this work by providing an analysis of the likely impacts on different businesses and types of households of various models of carbon and energy taxation, which will allow them to put forward proposals and conference to debate them in full knowledge of the impacts.

Ed Davey has a personal commitment to environmental issues that is informed by his time as Secretary of State for Energy and Climate Change in the coalition government, of which he speaks frequently (especially in relation to his success expanding the use of renewable energy). Green taxes combines two key areas of interest for him and given the centrality of tackling climate change to the party’s mission this is likely to be an issue the party returns to debate regularly in the years ahead.

Coronavirus support - Lib Dems champion the ‘left behind’

In relation to coronavirus support, the focus of the Lib Dems has been those people left out of the various support schemes. In his conference speech Ed Davey warned that “we cannot allow the random unfairness of this pandemic to scar people’s lives, especially the young. We must stand together. Leaving no one behind. Employers in hard-hit sectors must be given more support, to prevent many more people losing their jobs. People excluded from the self-employed scheme must be given the help they desperately need.” Those excluded include new starters, newly self-employed people and freelancers.

In the summer Davey called on the government to ensure that any business registered in a tax haven must be brought home and registered in the UK to receive coronavirus help: “The government makes decisions on who to help; it should not be using taxpayer money to help tax dodgers.” Business spokesperson Sarah Olney has urged the government to cancel the job retention bonus scheme, saying those businesses that have already got people back into work do not need the extra money and it should go to those who are still facing an uncertain future.

In response to the Chancellor’s ‘winter plan’ Treasury spokesperson Christine Jardine welcomed that the party’s calls for the government to extend furlough in some form and create some flexibility based on the German Kurzarbeit model had been heeded, but she complained about the three million people who have had no support for six months and will still be excluded from financial help. Jardine asked where the job creation plans are to tackle unemployment and for those who cannot work for a third of the time.

In light of the ‘unprecedented threat’ to the livelihoods of self-employed people due to the pandemic, Ed Davey tabled an amendment to the Finance Bill in June seeking to scrap the extension of off-payroll working rules to the private sector. “This is not the time to add to the burden of the self-employed,” he said.

Federal UK – Welsh Parliament would gain new powers

The conference reaffirmed the party’s commitment to a federal UK. The motion passed by the conference calls for the transfer of additional powers to the Senedd Cymru (Welsh Parliament) to bring it broadly in line with the Scottish Parliament. It also calls for the ‘equitable distribution of resources between different parts of the UK depending on need’ though how this would change the current settlement is not spelt out.

Most debate on the motion focused on the place of England within a federal UK. A group of members sought to ‘refer back’ the motion for further work, arguing that is was worthless without specifying how the largest piece of the UK would change to reflect a new federal structure. Some people advocate England-wide institutions such as an English Parliament. Others favour giving English regions greater power. The reference back failed and the motion passed but the party’s Federal Policy Committee plan further work in any case on English structures and powers.

The party fought last year’s election arguing for “a radical redistribution of power away from Westminster to the nations, regions and local authorities, giving power to communities to hold local services to account and decide how their taxes are raised and spent.” The party promised it would “legislate to empower groups of authorities to come together to establish devolved governance and ensure that any powers devolved are matched by the funding to deliver on the needs of local people.”

Budget scrutiny – new leader has a history of ideas

Not party policy as such, but given his rise to the leadership it is worth revisiting Ed Davey’s proposals for the reform of the role of MPs in overseeing the Budget set out in his paper Making MPs work for our money: Reforming Parliament’s role in budget scrutiny, published in 2000 by the thinktank, Centre for Reform.

This paper, produced by Davey while he was the party’s shadow chief secretary to the Treasury, proposed:

• The creation of ‘The Office of the Taxpayer’ to provide independent advice to MPs and Select Committees in their scrutiny of government spending and taxation proposals, headed by a ‘Taxpayers’ Investigator General’, a new Officer of the House of Commons, with top level security clearance and access to government papers
• Separation of technical tax from political and revenue issues, with two types of tax bills – Finance Bills and Tax Technicalities Bills – the latter published in draft and subject to consultation
• A statutory requirement that tax bills must be backed by a compliance costs report (produced by IR/HMRC), including the methodology used
• A new Lords Select Committee for Tax Simplification, to undertake continual and systematic review of all Acts of Parliament and EU Directives relating to tax, with the task of recommending simplifications of the tax system
• Establishing new Finance and Audit Sub-Committees for each departmental Select Committee
• Extra powers for MPs to amend spending proposals

By George Crozier