At Lib Dem conference in Bournemouth new leader Vince Cable set out his thinking on future tax policy, and the party passed motions on business rates and the gig economy.
This is the first in a series of reports on tax policy discussions at the main party conferences. Further reports will follow on Labour, Conservative and SNP conferences.
The new Lib Dem leader Vince Cable hasn’t appointed a replacement for himself as the party’s Shadow Chancellor yet, and seems happy continuing to cover the role himself. As a former professional economist (The Commonwealth, Chatham House, Shell) and Business Secretary in the 2010-15 coalition government, economics and fiscal matters is his specialist area and it is clear that he is driving policy development in these areas personally (see below), especially on corporate taxation and taxing wealth (a longstanding area of interest for Cable).
Economic and business centrism
The Lib Dems’ pitch to business is a broadly centrist one – that they are pro-enterprise while being anti-Brexit. They defend the Coalition’s cutting of the corporation tax rate to 20% while regarding further cuts as the wrong priority. Cable summarised for a question and answer session during the conference that, by embracing Brexit, “The Tories have walked away from business [while] I doubt many businesses want to embrace Venezuelan socialism”. In his conference speech Cable said the country needed “hope AND realism. In a Britain increasingly dominated by extremists and ideologues, I want us to fill the huge gap in the centre of British politics.” A spokesperson from the party’s Entrepreneur Network told the conference that the network was expanding.
Cable is sympathetic to the idea of taxing businesses based on their turnover. He told the conference that he thought there was ‘a need to shift some tax onto turnover or cashflow’, that he had a group of business people looking at this area and that he hoped to bring proposals to the next conference (unclear if he meant the spring conference or the next autumn conference). Before the election Cable had been appointed by his predecessor as leader, Tim Farron, to lead a group looking at this area, but the election had intervened before significant progress had been made. The party fought the general election on a proposal to “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”.
Inequality is an early theme of Vince Cable’s leadership and was the focus of his first big speech as leader, two weeks before the conference. In this speech Cable argued that inequalities of income, wealth and opportunity, between classes, regions and generations, were getting worse in Britain, and that this inequality “is not merely offensive to the sensibilities of progressive minded folk but is doing serious damage to the wider society and economy”. Tax reform, both in terms of taxing the wealthy more and taxing low earners less (see below for more on both), is central to his thinking in this area.
Cable told the conference that the party had to be politically brave about tackling extreme wealth inequality, which he said was getting worse. Responding to party members at a question and answer session he suggested increases in both inheritance tax and property tax would need to be considered. “At the next election we will be committed to transferring wealth from those that have very large assets to those that have none at all,” he said, to applause. In his keynote speech at the end of the conference Cable introduced the idea of using tax on wealth to support all young people with an endowment or learning account, “which they can use at any stage in life… helping to finance further or higher education, either at the post-18 stage or later in life.”
Cable sees the housing market as an area where additional government action is particularly needed to tackle inequality. One way he proposes to do this is through ‘fierce tax penalties on the acquisition of property for investment purposes, by overseas residents’. This would ‘end the stranglehold of oligarchs and speculators in our housing market’, he said. It is not clear whether Cable is proposing to go further than the policy of enabling local authorities to levy up to 200% council tax on ‘buy to leave empty’ investments from overseas (and second homes generally) that the party fought this year’s election on.
Taxing income – high earners
On personal taxes, as with business taxation, the Lib Dems are now positioned clearly between Labour’s proposals for substantial tax increases and Conservative plans for further tax cuts. Cable reiterated the party’s existing policy of increasing all rates of income tax by 1% to provide an extra £6 billion of funding per year for the NHS and social care, but the Lib Dems do not share Labour’s keenness to return to a 50p top rate. In his inequality speech two weeks before the conference Cable said that experience internationally suggested ‘that marginal tax rates of anything much above 50% are counterproductive and lead to rapidly diminishing returns’. He argued that there was “greater merit in trying to eliminate the large opportunities which exist for legal tax avoidance and arbitrage: cutting the differential between capital gains and income tax; equalising rates of tax relief on pension contributions between high and low earners, and ending the remaining tax privileges of those who are resident but not domiciled in the UK.” These remarks reflected the platform on which the party fought this year’s general election, which included policies such as returning Capital Gains Tax to 18% and 28%, and establishing a review to look at a single rate of tax relief for pensions. Cable has also floated the idea of moving to ‘the Scandinavian model of full public disclosure of tax returns’.
Taxing income – low earners
The Lib Dems were of course the progenitors of the big increases in the income tax personal allowance introduced by the Coalition. However Cable’s view is that this policy has now run its course and ‘extending it further is an expensive tax reform which benefits high as well as low income tax payers’ (inequality speech, 6/9/17). Instead he argues that future tax cutting policies should concentrate on lifting the national insurance threshold. He also argued that it would make sense to “integrate fully the income tax and employee national insurance systems recognising however that there are serious ‘cliff edge’ problems and unintended consequences for which careful planning would be needed.”
Student fees is a sensitive area for the Lib Dems, given the flak they took over the Coalition’s changes. Cable was the Secretary of State whose department was responsible for the policy. He has long been known to be sympathetic to the idea of a graduate tax, and indeed has frequently sought to characterise the student loan system as such a tax in most respects. At the conference he returned to the issue, saying: “[J]ust because the system operates like a tax, we cannot escape the fact it isn’t seen as one…the worry about debt does cause students and their families real concern.” He has therefore launched a review, led by former Cambridge MP David Howarth, which will recommend options for reform, including a graduate tax. The results will be put to a future conference.
Self-employment / gig economy
The conference passed a motion welcoming the recommendations of Matthew Taylor’s report on the ‘modern economy’, notably the proposal for a new legal status of 'dependent contractor'. The motion supported new forms of unionisation and worker cooperatives relevant to this employment market, and greater enforcement by HMRC and employment tribunals of employment rights. It also called for new legal tests to determine the employment status of workers, and for reforms to make Universal Credit more supportive of the self-employed. The party will develop its ideas further in a planned policy paper on the ‘21st century economy’. The proposer of the motion, Business spokesperson Lord Fox, said the benefits of the gig economy should not blind people to the challenges, which had been visibly illustrated by recent court cases.
Lib Dem policy is to replace business rates with Site Value Rating (land value taxation). The party passed a motion calling for a fundamental review of the Business Rate system including consideration of Site Value Rating, and also for the Government to adopt two interim measures without delay: a new ‘Pub Cap’ limiting increases in rates bills to 12.5% on Public Houses, restaurants, hotels and cafes (as already exists in Scotland), and giving local authorities the ability to pilot Site Value Rating. The motion applies only to England. Asked about business rates during a question and answer session Vince Cable said there were both short-term remedial issues with the levy (businesses not getting promised relief because government software has broken down) and also bigger long-term issues of principles. Cable said he thought business rates were “not a very good form of taxation. If you’re trying to get an underlying value of physical assets you should be taxing the value of land on which it rests.”
Corporate responsibility / beneficial ownership
The party passed a motion setting out reforms to the way companies work which, they argue, should mean they work better in the public interest, as well as to help repair public trust in them. These include encouraging greater diversity of types of business (mutuals, co-operatives, social enterprises, etc.), requiring public and binding votes of board members on executive pay policies and requiring all UK listed companies and large private companies to have at least one employee representative on their Boards. The party also proposes requiring verification of public declarations of the beneficial owners of companies registered in the United Kingdom, its overseas territories and crown dependencies, and enhancing disclosure of the beneficial ownership of real estate including by overseas companies owning property in the UK. As with the contents of the motion relating to the gig economy, these ideas will be worked up to appear in a future policy paper on the ‘21st century economy’. Proposing the motion, former London Assembly member Mike Tuffrey said the party’s focus was rewarding those taking a long-term stewardship approach. He accused the Government of delaying action on beneficial ownership, which would expose ‘shady characters who may be evading tax or money laundering’.
While defending free trade Cable’s keynote speech also contained a strong commitment to stand up against the abuse of corporate power. He cited the communications and technology companies, observing that the only body strong enough to stand up to Microsoft, Google, Amazon and Facebook is the European Commission. “Does anybody seriously believe that a post-Brexit British government will do anything other than roll over when the big boys in come looking for favours or dodging taxes at will?” he asserted.
Brexit was, unsurprisingly, at the centre of conference debate. Party differences, to the extent they exist, focus not on objective (finding a way to stay in if possible, the ‘softest’ possible Brexit if not) but on tactics. The party’s position was reasserted by Vince Cable – who had previously expressed doubts about a second referendum – in his conference speech: “Our position is clear: The Liberal Democrats are the party of Remain. …Let me be clear about this. This is not a call for a re-run. This is not a call for a second referendum on Brexit. This is a call for a first referendum on the facts.” He had earlier said that this was issue where tribal differences must be put aside and the Lib Dems would work alongside like-minded people to keep the Single Market and Customs Union, alongside other areas of common action. The party’s 100 peers will be pivotal in votes when the EU Withdrawal Bill goes to the Lords in the new year.
The party’s Scottish leader, Willie Rennie MSP, repeated the party’s commitment to an additional 1p on income tax north of the border, with the proceeds being used to increase spending on education.
The party passed an emergency motion calling for the Government to pause the planned accelerated roll-out of Universal Credit until problems with implementation can be addressed. The propose a number of immediate measures including removing the seven waiting days at the start of a claim, to reduce the amount of time people have to wait for their first payment; monitoring the impact of payment one month in arrears, and changing it if this results in rising debt and destitution; and making sure everyone moving to UC is told they can get an Advance Payment to help them while they wait for their first payment. The motion also reiterated the party’s support for more substantial reform of UC including reversing the Government’s cuts to the amount claimants can earn before their benefits are reduced. Proposing the motion, the party’s Work and Pensions spokesperson, Stephen Lloyd MP, called the introduction of UC ‘a complete shambles’. He said over £3 billion had been taken out of the UC programme since the Lib Dems left government, including a cut to the taper rate.
CIOT Head of External Relations