Lib Dem Conference 2024: ‘Responsible opposition’ has big business in the firing line

Lib Dems promise to be the ‘responsible opposition’

The election of 72 MPs in July means the Lib Dems are the largest third party in Parliament for a century. But the election of 411 Labour MPs, giving that party a majority of 174, means they will struggle to make a noticeable impact on policy.

Party leader Ed Davey confronted this problem in his closing address to the conference on Tuesday (17 September), saying that his party would seek to be “the responsible opposition to this Government”. He said the Lib Dems would urge the Government “to act faster and be much bolder. Because the challenges we face cannot be solved by burying our heads in the sand and pretending they don’t exist – like the Conservatives do. But nor can they be solved with the pessimism and defeatism we’re hearing from Labour.”

Davey said the Lib Dems would offer “ambition for our country”, scrutinising Labour’s plans carefully, striving to improve them, but opposing them where they disagree. He cited the decision to strip the Winter Fuel Payment from most pensioners as an example of the latter. While he did not set out in his speech alternative ways to find the money that that would save, three days earlier, in the House of Commons, he had suggested that the Government should instead increase taxes on banks (see below).

The conference saw very little policy development on the tax front so the policies being put forward by the Lib Dems will continue to be those they fought the election on. These add up to a plan which the party says would raise nearly £27 billion extra in tax revenue by the final year of the Parliament, from measures including a crackdown on tax avoidance and evasion, reforms to capital gains tax and raising more from large businesses in a number of sectors. (See below for more on all of these.)

Personal taxes – capital taxes targeted

The Lib Dems have ideas for reforming capital gains and inheritance taxes. With Labour rumoured to be looking at these areas too it is worth examining these plans for a preview of what we might see in Rachel Reeves’ Budget.

Most eye-catching are the Lib Dem proposals on capital gains tax. These are for three rates of CGT, like there are for income tax: 20% (for gains up to £50,000), 40% (between £50,000 and £100,000) and 45% (over £100,000). Unlike now, where your CGT rate is determined by adding together your income and capital gains, the rate would be based solely on your gains, they explained. The annual exempt amount would go up to £5,000, and they would introduce a new inflation allowance, so that any gains that are purely the result of inflation are not taxed at all. There would also be a targeted relief for small businesses. The party estimates that these reforms would raise £5.2 billion a year in 2028-29.

On inheritance tax the party did not propose any changes at the election but Ed Davey said in a conference interview that he would like to reform it to remove opportunities for avoidance by the rich, suggesting he would use the money raised to reduce the IHT burden on those who are less well off.

“Lots of people’s homes in many areas of the country are quite valuable, and they end up being clobbered by inheritance tax,” said Davey. “I think that’s unfair because if you look at the flip side, people who are inheriting huge amounts of money often are able through clever tax planning to avoid inheritance tax. So I’d like to see a reform that makes it more fair, frankly.”

Davey continued: “Those people who aren’t inheriting huge amounts – and that money comes primarily from their property - they would see lower inheritance tax and you pay for that by ensuring that the better off pay more.” He didn’t identify what reforms he would specifically like to see but potentially he might be thinking of use of trusts and the generosity of various IHT exemptions and reliefs.

Davey did not refer to the party’s policy, adopted in 2018 but not obviously replaced, of replacing inheritance tax with a progressive recipient-based tax covering all large transfers (including gifts) over a lifetime. The same policy paper (we reported on it here at the time) also proposed taxing capital gains and dividends through the income tax system, but this seems to have been dropped. Other proposals in the 2018 paper whose status is unclear include scrapping capital gains forgiveness at death, introducing additional higher council tax bands and introducing a flat rate of relief on pension contributions. The Lib Dems tend to see their policy documents as a store of policies which may or may not be picked up for manifestos depending on the priority attached to them. In this Parliament it is possible new ministers and their officials will be picking over them too.

On employment taxes the Lib Dems have indicated that their priority for tax cuts, when the public finances allow, would be to cut income tax by raising the tax-free personal allowance.

Business taxes – replace business rates, target big tech and banks

The dominant theme of Lib Dem business tax policy is targeting unloved big business sectors while trying to help small businesses and high streets.

Sarah Olney, the party’s then Treasury spokesperson, told a fringe meeting at the conference that it was “not good enough” that Labour haven’t thought through what they want to do with business rates yet. “We’re going to hold them to account,” she promised. This echoed a call she had made in Parliament on 5 September where she warned that, “for too long, our high streets have been hostages to an outdated and damaging business rates system”, and expressed ‘deep concern’ not to see any mention of business rates reform in the King’s Speech.

The Lib Dem proposal in this area is for a revenue neutral switch to a ‘Commercial Landowner Levy’, essentially a land value tax limited to non-residential land and property. It would not be a surprise if this was where Labour were to end up, though neither party would surely be able to resist tinkering with the underlying principle to boost high street businesses at the expense of ‘big tech’.

The aforementioned ‘big tech’ is one of a number of sectors in the firing line for the Lib Dems, with the party continuing to argue for raising the Digital Services Tax. The party is also targeting banks (increases to the Bank Surcharge and Bank Levy, restoring them to 2016 levels in real terms), water companies (a new Sewage Tax on their profits), tobacco companies (an additional levy on their profits), drinks manufacturers (extending the soft drinks levy), companies who implement share buybacks, oil and gas companies (increases to the Energy Profits Levy) and gambling firms (a new levy to fund work on problem gambling). The last two are also government policy. Might some of the others become so too?

The Lib Dems continue to reiterate their support for reform of the apprenticeship levy, with Olney saying during the King’s Speech debate that they want to “replace the current scheme with a broader and more flexible skills and training levy”. While this has a similar sound to Labour’s ‘Growth and Skills Levy’ the Lib Dems are concerned that Labour’s plans are too timid and can be expected to table amendments when the proposal is legislated for.

Finally, as part of their plans for an industrial strategy, the Lib Dems have said that any industrial strategy process should include a review of research and development tax incentives, to make sure they work fairly and effectively, fostering investment and growth.

Indirect taxes – Lib Dems stick to their guns on school fees

Lib Dems will join Conservatives in opposing VAT on school fees. The party’s spokesperson robustly defended the policy during the conference.

While Lib Dems and Labour are of similar minds on most tax policies, with differences generally being prompted more by Labour’s more cautious approach and pre-election commitments than by disagreements of principle, there is one high profile tax policy where the two parties are in clear opposition – Labour’s plan to put VAT on private school fees.

Lib Dem education spokesperson Munira Wilson was challenged over this by a guest speaker at a fringe meeting and responded with the simple defence that the party does not support taxing education.

Wilson had set out the party’s position in more detail during the King’s Speech debate in July, explaining that she does not think the policy “will do much at all to boost our state schools”. She argued it risks reducing “the brilliant partnership work—the sharing of staff time and facilities, for example—that we see between so many private schools and their local state schools”, and expressed particular concern “about those parents who, for whatever reason, feel that the local state school is not best suited to their child’s needs”.

The party did not focus on its ambitious environmental tax plans during the conference but we can expect to hear more about them in the course of the Parliament, one new MP predicted. As well as the Sewage Tax and extending the Energy Profits Levy these proposals include:

• a new subsidised Energy-Saving Homes scheme, with pilots to find the most effective combination of tax incentives, loans and grants, together with advice and support
• making it easy and cheap to charge electric vehicles by cutting VAT on public charging to 5%
• reforming the taxation of international flights to focus on those who fly the most
• a new super tax on private jet flights, and removing the VAT exemptions for private, first-class and business-class flights.

Tax administration – customer service investment can cut tax gap

The Lib Dems, like Labour and the Conservatives, fought the election on a promise to raise billions (£7.2 billion more in their case) from tackling tax avoidance and evasion. Like Labour the party said it would invest an extra £1 billon a year in HMRC to achieve this.

Treasury spokesperson Sarah Olney expanded on the Lib Dem plans in a letter to CIOT during the campaign, responding to the Institute’s letter to all the parties’ tax spokespeople. She noted the recommendations of the recent report from the Association of Revenue and Customs around investing in staffing, skills, technology and customer services to help narrow the tax gap, saying these are the steps the Lib Dems would take. “Investing in customer service in particular is vital to ensuring people get the support they need to file their taxes properly, which would help reduce the 15% of the tax gap that is due to error,” she said. “We would make digitalisation focus on the needs of taxpayers, by putting in the investment and staff needed to make it work effectively.”

Olney also addressed the need for tax simplification in her reply to the CIOT. She noted that it was during the Lib Dems’ time in government that the Office of Tax Simplification was founded and that her party had opposed its abolition. On improving standards in the tax profession she said the Lib Dems want to see “a targeted and effective approach to tackle poor performance and unethical practices”.

Policy development continues

As noted above there were no new tax policies put before the party conference this year.

A motion on international development reiterated the party’s support for: “Taking further steps to tackle economic crime, including the use of tax havens and money laundering, by passing further economic crime legislation.”

New policies included a motion on consumer protection which calls on the Government to regulate ‘Buy now pay later’ like other forms of lending, and a Europe motion supporting greater youth mobility and action on excessive roaming charges.

The conference saw consultative sessions giving members a chance to input into policy development on Opportunity & Skills, and the Future of Work. Members have also been appointed to two new policy working groups: one on Climate Change, and an overarching policy review. Along with a further group on Science & Innovation these groups will be proposing papers for the party’s two conferences in 2025.

New spokespeople appointed

The day after the conference finished, Ed Davey announced a reshuffle of his team of spokespeople, with deputy leader Daisy Cooper appointed as Treasury spokesperson.

Cooper has been MP for St Albans since 2019. While qualified in law she worked primarily as a campaigner before being elected to Parliament, including running the Hacked Off campaign for victims of press abuse. She was previously health spokesperson for the party.

New MP for Chippenham Sarah Gibson will speak for the party on Business. She ran an architectural practice before her election in July. Torbay MP Steve Darling will be Work and Pensions spokesperson and Wokingham MP Clive Jones will speak on Trade.

There has not (so far at least) been a reshuffle of the party’s spokespeople in the Lords so Baroness (Susan) Kramer is continuing to speak for the party on Treasury matters and Lord (Chris) Fox on Business and Trade, with Lord (Monroe) Palmer leading on Work and Pensions.