The Liberal Democrats have set out plans for significant reforms to business taxation and to tax capital gains and income through a single allowance. Business rates would be replaced with a new Commercial Landowner Levy and business taxation would be ‘simplified’ to lower administration costs.
The proposals appear in the party’s manifesto, launched today, which also sets out plans to add 1p to all income tax rates to fund health and care services and restore corporation tax to 20 per cent. Another eye-catching measure is ‘ending retrospective tax changes like the loan charge’, as well as reviewing current proposals to change the IR35 rules. The party also sets out plans to modernise employment rights ‘to make them fit for the age of the gig economy’.
The Lib Dems’ headline policy is stopping Brexit. A majority Lib Dem government would revoke article 50 immediately after the election, arguing that its election provides a sufficient mandate to do this, without the need for a further referendum (though in a hung parliament it would support a referendum). The benefits the party perceives from remaining in the EU, including for trade and industry, as well as a £50 billion ‘remain bonus’ that the Exchequer would gain as a result of faster economic growth, are at the heart of its election offer.
The party also goes big on tackling climate change, one of the biggest sections of the manifesto. This section includes a number of tax measures, including changes to stamp duty land tax, VAT and air passenger duty.
In full - Liberal Democrat manifesto tax (and related) proposals
Fair Taxes section of manifesto
Government must ensure the tax system meets the needs of a modern economy and is ready for the transition to a digital and zero-carbon economy. Businesses and individuals who benefit from being based in the UK should pay their fair share in tax – and responsible businesses are willing to do this. They benefit from public goods such as an educated workforce, a stable economy and publicly-funded infrastructure, and it is right that they should contribute towards them. But the taxation system is unbalanced and unfair: it is too easy for tech giants and large monopolies to avoid tax and income from employment is taxed more harshly than income generated by wealth.
Labour and the Conservatives are looking to the past for answers that will not work today: Labour want to hike up income tax in a way that will not even ensure that more tax is paid; the Conservatives have no interest in making the taxation system fairer. Our plan for the future will see big businesses paying their fair share, support small and medium-sized enterprises and ensure that income earned from wealth is not privileged when compared to income from employment – making sure the tax system is fair to all. We will:
- Restore Corporation Tax to 20 per cent – reversing the Conservatives’ reduction of this tax to 17 per cent – and keep the rate is stable with a predictable future path.
- Taxing income from capital more fairly compared to income from work by abolishing the separate Capital Gains Tax-free allowance and instead taxing capital gains and salaries through a single allowance.
- Simplify business taxation to lower administration costs – supporting smaller companies – and reduce opportunities for tax avoidance.
- Replace Business Rates in England with a Commercial Landowner Levy based solely on the land value of commercial sites rather than their entire capital value, thereby stimulating investment, and shifting the burden of taxation from tenants to landowners.
- Take tough action against corporate tax evasion and avoidance especially by international tech giants and large monopolies, including by:
- Introducing a General Anti-Avoidance Rule, setting a target for HM Revenue and Customs to reduce the tax gap and investing in more staff to enable them to meet it.
- Reforming place of establishment rules to stop multinationals unfairly shifting profits out of the UK.
- Improving the Digital Services Tax to ensure tech giants pay their fair share.
- Support and build on the OECD’s proposals to require multinationals to pay a level of tax which is more closely related to their sales in every country in which they operate.
- End retrospective tax changes like the loan charge brought in by the Conservatives, so that individuals and firms are treated fairly, and review recent proposals to change the IR35 rules.
- Scrap the Marriage Tax Allowance.
Economy and business section (selected other proposals)
- Investing £130 billion in infrastructure – upgrading our transport and energy systems, building schools, hospitals and homes, empowering all regions and nations of the UK and developing the climate-friendly infrastructure of the future.
- An adaptable, future-focused workforce – empowering individuals through new Skills Wallets worth £10,000 for every individual.
- Introducing a wellbeing budget and basing decisions for government spending on what will improve wellbeing as well as on economic and fiscal indicators.
Sector-specific tax proposals
- Support growth in the creative industries, including video gaming, by continuing to support the Creative Industries Council and tailored industry-specific tax support, promoting creative skills, supporting modern and flexible patent, copyright and licensing rules, and addressing the barriers to finance faced by small creative businesses.
- Support the growth of new jobs and businesses in the tech sector by allowing companies to claim R&D tax credits against the cost of purchasing datasets and cloud computing, simplifying the regulatory landscape and speeding up regulatory change.
- Support the tourist industry which is vital for many local economies by… Enabling local authorities to bring in tourist levies to fund local tourism infrastructure.
Entrepreneurs and Small Business
- Create a new ‘start-up allowance’ to help those starting a new business with their living costs in the crucial first weeks of their business.
- Expand the rights and benefits available to those in insecure forms of employment, such as offering parental leave and pay to the self-employed.
- Reform fiduciary duty and company purpose rules to ensure that all large companies have a formal statement of corporate purpose, including considerations such as employee welfare, environmental standards, community benefit and ethical practice, alongside benefit to shareholders, and that they report formally on the wider impact of the business on society and the environment.
- Encourage new forms of incorporation and a diversity of business types, such as for large firms contracting with the public sector or providing essential utilities and for smaller firms wanting a dual purpose to be profit-making and have a positive impact on society, workers, communities and the environment.
Future of work
- Modernise employment rights to make them fit for the age of the ‘gig economy’, including by:
- Establishing a new ‘dependent contractor’ employment status in between employment and self-employment, with entitlements to basic rights such as minimum earnings levels, sick pay and holiday entitlement.
- Reviewing the tax and National Insurance status of employees, dependent contractors and freelancers to ensure fair and comparable treatment.
- Setting a 20 per cent higher minimum wage for people on zero-hour contracts at times of normal demand to compensate them for the uncertainty of fluctuating hours of work.
- Giving a right to request a fixed-hours contract after 12 months for ‘zero hours’ and agency workers, not to be unreasonably refused.
- Reviewing rules concerning pensions so that those in the gig economy don’t lose out, and portability between roles is protected.
- Shifting the burden of proof in employment tribunals regarding employment status from individual to employer.
- Increase national spending on research and development to three per cent of GDP. We will publish a roadmap to achieve this ambition by the earliest date possible, via an interim target of 2.4 per cent of GDP by no later than 2027.
- Expand the apprenticeship levy into a wider ‘Skills and Training Levy’ to help prepare the UK’s workforce for the economic challenges ahead with 25 per cent of the funds raised by the levy going into a ‘Social Mobility Fund’ targeted at areas with the greatest skill needs.
Environment section (selected proposals)
- Cut energy bills, end fuel poverty by 2025 and reduce emissions from buildings, including by providing free retrofits for low-income homes, piloting a new subsidised Energy-Saving Homes scheme, graduating Stamp Duty Land Tax by the energy rating of the property and reducing VAT on home insulation.
- Accelerate the rapid take-up of electric vehicles by reforming vehicle taxation, cutting VAT on EVs to 5 per cent and increasing the rate of installation of charging points, including residential on-street points and ultra-fast chargers at service stations. We will ensure that, by 2030, every new car and small van sold is electric.
- Shift more freight from road to rail, including electrifying lines leading from major ports as an urgent priority, and amend the current HGV road user levy to take account of carbon emissions.
- Reduce the climate impact of flying by reforming the taxation of international flights to focus on those who fly the most, while reducing costs for those who take one or two international return flights per year [and other, non-tax, measures]
Health section (selected proposals)
- Raise £7 billion a year additional revenue which will be ring-fenced to be spent only on NHS and social care services. This revenue will be generated from a 1p rise on the basic, higher and additional rates of Income Tax (this revenue will be neither levied nor spent in Scotland.)
- In the longer term, to put the funding of health and care on a sounder footing we will commission the development of a dedicated, progressive Health and Care Tax, offset by other tax reductions, on the basis of wide consultation and extensive engagement with the public. The intention is to bring together spending on both services into a collective budget and set out transparently, on people’s payslips, what the Government is spending on health and social care.
- Introduce a compulsory levy on gambling companies to fund research, education and treatment of problem gambling.
- Develop a strategy to tackle childhood obesity including restricting the marketing of junk food to children, and closing loopholes in the Soft Drinks Industry Levy. We will extend it to include juice- and milk-based drinks that are high in added sugar.
- Reduce smoking rates by introducing a new levy on tobacco companies to contribute to the costs of health care and smoking cessation services.
- Introduce minimum unit pricing for alcohol, taking note of the impact of the policy in Scotland.
Fair society (including social security) section (selected proposals)
- Make the welfare system work by:
- Reducing the wait for the first payment from five weeks to five days.
- Tackling child poverty by removing the two-child limit and the benefits cap.
- Making work pay by increasing work allowances and introducing a second earner work allowance.
- Reform Universal Credit to be more supportive of the self-employed.
- Abolish the bedroom tax and introduce positive incentives for people to downsize.
- Ensure that everyone gets the help they need by separating employment support from benefits administration and increase spending on training and education.
- Reverse the cuts to Employment Support Allowance for those in the work-related activity group.
- Radically overhaul the Bereavement Allowance, slashed by the Conservatives, so that widows and widowers receive far more support and extend the payments to unmarried couples when a parent dies.
- Allow local authorities to increase council tax by up to 500 per cent where homes are being bought as second homes with a stamp duty surcharge on overseas residents purchasing such properties.
Our plan for better politics (constitution) section (selected proposals)
- Embarking on 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.
- Give democratic local government enhanced powers to call on new income sources appropriate to their area to support local services and investment.
- Devolve further revenue-raising powers away from Westminster, to regions from Cornwall to North East England. We will 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.
- Devolve more decision-making power over key levers of economic development including transport, energy, housing and skills.
- Extend the involvement of the Scottish Government and Welsh Government in the development of UK-wide policy frameworks.
- Establish a dispute resolution process to resolve differences between the administrations
- Review the UK excise duty structure to better support whisky exports.
- Devolve Air Passenger Duty to put Wales on a fair playing field with Scotland and Northern Ireland and put Cardiff Airport on a fair playing field with regional airports in England.
- The Liberal Democrats when in government delivered a substantial extension of financial powers to the nations of the UK and we will devolve further fiscal powers.
Other proposals (selected)
- Offer free, high-quality childcare for every child aged two to four and children aged between nine and 24 months where their parents or guardians are in work: 35 hours a week, 48 weeks a year.
- Work through international bodies for better regulation and scrutiny of international trade and investment treaties to ensure they do not worsen inequalities or undermine human rights or developing countries’ ability to regulate the environmental and social impacts of businesses.
- Champion global anti-corruption initiatives and ensure the UK and British Overseas Territories have publicly-accessible registers of beneficial ownership of companies registered in their jurisdictions.