Lib Dem conference 2023: Party drops income tax rise amid cost of living crisis

Contents:

• Lib Dems drop penny on income tax plan
• ‘Fair deal’ tax plan promises to scrap CGT allowance
• Greater powers for councils over taxing second homes
• Party would replace business rates and apprenticeship levy
• Growing role for green taxes
• Central role for tax in sustainable fashion plans
• Other conference news - universal credit, pensions, parental leave and fuel duty

Lib Dems drop penny on income tax plan

The Liberal Democrats have dropped their policy of a 1p increase in income tax rates to raise additional revenue for health and social care.

The party is arguing that it is no longer sustainable to raise personal taxes further at a time when the freezing of income tax and national insurance allowances and thresholds is already amounting to a tax rise equivalent to 4p on the basic rate.

In a statement issued during the conference the party stated that people across the UK are facing a ‘cost of living catastrophe’ which the Conservative government is making worse:

“Raising income tax for everyone by freezing the personal allowance and 40p threshold. Dragging more low-earners into paying tax. While inflation soars, the country is paying more tax than at any time since the Second World War…

“So it would be wrong for us to raise income tax even further on families struggling to make ends meet - that’s why we won’t continue our policy to add a penny to income tax. Instead we’ve set out other ways to fund our plans for a fair deal.

“We will make sure that companies that can afford to pay more in tax, do. We will reverse the Conservatives’ multi-billion-pound tax cuts for the big banks. And HMRC will be empowered to collect more of the £36bn in taxes that the Conservatives are failing to collect.”

Asked in an interview party leader Sir Ed Davey elaborated that oil and gas companies (via an increased energy profits levy) as well as banks (via the corporation tax surcharge) would be two groups the party would look to to help make up the shortfall in their promised extra funding for NHS and social care. He reiterated that the manifesto the party would put forward at the election would be fully costed.

One consequence of the policy change is that it more closely aligns Lib Dem tax policy with Labour’s, given that the larger party had already promised not to raise income tax. This may become relevant in the event that no party wins a majority at the election.

‘Fair deal’ tax plan promises to scrap CGT allowance

The Liberal Democrats are set to go into the next election campaign promising to abolish the separate capital gains tax allowance and treat income from wealth similarly to income from work.

A wide-ranging pre-manifesto paper titled ‘For a Fair Deal’ was approved by this week’s party conference in Bournemouth. It is effectively the ‘first draft’ of the manifesto the party will fight the general election (expected next year) on. Most of the policies in the paper restate existing party policy. While absence from the paper does not mean that something has ceased to be policy it does suggest it is not a priority for the party. Not all policies will appear in the party’s manifesto, which leaders have promised will once again be fully costed.

Stating that “[f]air and progressive taxation is vital to sustain the services that support our economy and society” the paper states that a Liberal Democrat government would:

• Help people with the cost of living and their energy bills by implementing a proper, one-off windfall tax on the super-profits of oil and gas producers and traders.
• Make taxes fair, ensuring that tax burdens don’t fall disproportionately on low earners, reversing the Conservatives’ tax cuts for big banks, and abolishing the separate Capital Gains tax-free allowance, to tax income from wealth more similarly to income from work.
• Give taxpayers real value for money, by clamping down on tax avoidance and evasion, narrowing the tax gap, and giving HMRC more resources to properly tackle tax fraud, which has cost the taxpayer billions under the Conservatives.
• Make sure that day-to-day spending does not exceed the amount of money raised in taxes over the medium term, with additional flexibility during periods of economic crisis.
• Uphold fiscal responsibility by ensuring that all fiscal events are accompanied by forecasts from the Office for Budget Responsibility.

Greater powers for councils over taxing second homes

The Lib Dems are proposing a ‘locally led’ approach to second homes, giving local authorities the right to decide whether to level much higher rates of council tax and impose a stamp duty land tax (SDLT) surcharge on second home purchases in their area.

A housing policy paper and accompanying motion passed by the party in Bournemouth argues that the Conservatives’ plans to double council tax on owners of second homes in England that are furnished but unoccupied do not go far enough. The Lib Dems argue that second homes in many cases don’t cause any problems for the community, and people in these areas should not be penalised, but where they do start to cause harm to the community, local authorities should be empowered to increase council tax by up to 500% where homes are being bought as second homes. For existing homes, the party would grant councils the power to introduce a SDLT surcharge paid by the purchaser if they already have another home, with a larger surcharge on overseas residents purchasing such properties.

The Lib Dems propose to remove eligibility for small business rate relief from second homes and holiday lets in order to “require them to pay their fair share of tax” as well as introducing a new planning class for holiday lets.

The housing paper proposes the introduction of council tax on unsold homes and unbuilt homes that have planning permission, on a timescale agreed with the local authority at the time conditions have been discharged. This would include “robust assessments of what the commencement of work looks like and a clear timeline for the building and selling of new homes.”

The debate on this paper saw the most heavily contested vote of the conference, with the addition of a national housing target to the motion via an amendment tabled by the Young Liberals as a sign of the party’s ‘serious intent to address the housing crisis’. Opponents of this had worried that a national target including private sector homes would lead to a ‘one size fits all’ approach and potentially be inconsistent with the UK meeting its net zero obligations.

The paper also seeks to ‘create a fairer market in land’ with measures including extending the party’s proposal for a ‘Commercial Landowner Levy’ (see below) to land that has planning permission, and continuing trials of Community Land Auctions to ensure that local communities receive a fair share of the benefits of new development in their areas.

The motion accompanying the paper criticises ‘successive governments’ for pursuing policies “such as cuts to stamp duty [that] have increased demand for homes without increasing the supply, exacerbating the crisis”.

Party would replace business rates and apprenticeship levy

The Lib Dems have reaffirmed the party’s policy of replacing business rates and the apprenticeship levy, and proposed reforms to research and development incentives.

A policy motion passed on the first day of the conference restates the party’s commitment to replacing business rates with a ‘Commercial Landowner Levy’. As set out at the last election, this levy would be based solely on the land value of commercial sites rather than their entire capital value, with the aim of stimulating investment, and shifting the burden of taxation from tenants to landowners.

The motion also states that, to build an inclusive economy with broad access to training and skills, the party would scrap the lower ‘apprentice’s wage’ band and replace the ‘broken’ apprenticeship levy with a broader and more flexible skills and training levy.

Titled ‘Bring back the industrial strategy’, the motion proposes to reestablish the Industrial Strategy Council and introduce measures to ‘crowd-in’ private sector investment. The party also proposes to: “Set up effective incentives for R&D investment, decarbonisation, and the take-up of digital technologies, especially among SMEs; and ensure that the UK’s regulatory, R&D and tax frameworks are geared towards fostering innovation.” It does not provide detail on what these incentives would consist of.

Further policies for business and jobs are set out in the party’s pre-manifesto, also adopted at the conference. These include ‘starting to fix the Conservatives’ botched deal with Europe’, giving Parliament greater powers in setting UK trade policy, and changing the law so that flexible working is open to all from day one in the job, unless there are significant business reasons why that is not possible.

Growing role for green taxes

The Lib Dems have committed themselves to making green taxes an increasing share of UK taxation.

A paper containing policies to support the natural environment includes plans for an Environment and Wellbeing Budget, introducing a new fiscal rule to ensure that tax and spending plans are sustainable.

The party would undertake regular systematic reviews to ensure that green taxes and spending make up an increasing proportion of the overall fiscal picture, as well as increasing the tax reliefs offered for greener choices and phasing out subsidies for polluting industries.

Measures the party would introduce to ensure the right incentives are in place to cut back on waste and overconsumption include comprehensive deposit return schemes as well as Extended Producer Responsibility.

The housing paper passed at the conference reiterates the party’s plans for the ‘greening’ of SDLT and, to an extent, income tax. Under Lib Dem policy SDLT would be graduated by the energy rating of the property, with refunds offered to house purchasers if they improve the rating within one year of purchase. Home owners would also be able to offset spending on insulation, low-carbon heat sources, EV charging points and climate adaptation measures against their income tax bills.

Central role for tax in sustainable fashion plans

The Lib Dems are calling for the introduction of a 1p levy on new garments produced for sale on the UK market, with the proceeds ringfenced for the improvement and development of local recycling facilities and collection.

This is one of the measures in a motion, ‘Fixing Fast Fashion - Reduce, Reuse, Recycle’, passed by the conference on Sunday morning.

Claiming that the fashion industry accounts for a ‘staggering’ 10% of global greenhouse gas emissions, the party calls for a ‘radical transformation’ of the sector to make it more sustainable. 

Other tax-related policies in the motion include a call for the UK government “to incentivise the reuse and repurposing of garments by offering favourable VAT rates to resale shops and online platforms, rental services, and tailoring and repair services, together with providers of training and skills for repair work”.

Additionally the party wants the plastic packaging tax to be extended to textile products containing less than 50% recycled PET, to stimulate the UK market for recycled fibres.

Other conference news 

The Lib Dems are set to go into the election campaign promising to reverse the Conservatives’ £20-a-week cut to Universal Credit and committed to raising legacy benefits, and replacing the sanctions regime with an incentive-based scheme to help people into work. They would set a target of ‘ending deep poverty within a decade’, and establish an independent commission to recommend annual increases in Universal Credit to achieve it.

The Lib Dems became the first UK party to commit to protecting the triple lock on pensions in the next Parliament, with an announcement ahead of the conference. The party’s pre-manifesto includes a commitment to protect the triple lock, ensuring that pensions rise in line with inflation, wages or 2.5% – whichever is highest. A few days later it was widely reported that the Conservatives would follow suit with a similar commitment.

A new policy paper sets out proposals to improve childcare provision and ‘revolutionise parental leave’. The party proposes to give all workers, including self-employed parents, a day-one right to parental leave and pay. All families would get up to a year of paid parental leave. Each parent would get six weeks of use-it-or-lose-it leave, with 46 weeks of parental leave to share between themselves as they choose. Parental pay (after the initial six weeks) would be doubled to £350 per week. Paternity pay would be increased to 90 per cent of earnings, with a cap for high-earners.

The party passed a policy motion calling on the government to explore a new system to replace revenue from fuel duty. The motion is not prescriptive but says the new system must be “fair and based on how often people drive, while recognising the needs of rural and remote communities”.