A tale of two conference speeches: Ed Davey declared the Lib Dems to be the party of low taxes, and outlined £17bn of tax cuts to Income Tax and Fuel Duty, paid for by making a better deal with the EU, whilst Andy Burnham proposed a National Care Service – with an estimated cost of £18bn according to the Health Foundation. Burnham proposed funding this by adjusting the Triple Lock – although he didn’t explain it that well in the speech. The new approach will tackle the “ratchet” effect – where inflation is high one year, wages grow high in the second in response, so the pension grows rapidly twice in a row. The new system will keep it roughly in line with a third of average wages, making it more predictable and affordable. Importantly, it will never decline in real terms.
The triple lock was designed for those halcyon days of the 2010s – low inflation and modest wage growth, not the stagflation of the 2020s which in our hubris we assumed was condemned to the history books of the 1970s.
Now Burnham’s costings don’t actually add up – his proposal will start to save substantial sums over the long term – but will be a few billion short. That’s fine, it’s a conference speech not a Budget. All the major opposition parties came out the gate to oppose this – despite initial polling showing that this trade off is popular and fair.
Davey said that social care can’t wait for the next parliament – we need action now – which we all agree with. He also said it shouldn’t be funded by modifying the Triple Lock, which begs the question, can we afford the Triple Lock? The answer is yes for the next 10 or 15 years, but not as a low tax party.
Choices have to be made – we have already spent all the proceeds of growth on tax cuts, so we can’t grow the economy even more to pay for it. That leaves tax rises or spending cuts to pay for it. We also are in favour of restoring Overseas Development Aid, fixing the crisis in social care, and increasing defence expenditure. I assume we aren’t in favour of savagely cutting education, and are opposed to defaulting on the national debt, which leaves essentially nothing left to cut, despite the rhetoric from the right-wing press about being able to save untold billions from “efficiency”. For instance, Civil Service headcount has grown in recent years largely due to the renationalisation of the Probation Service – nothing to do with bloat or profligacy.
Fundamentally we will need substantial tax rises to pay for everything we want – or we can accept the Triple Lock’s time is over. Fiddling with the Digital Services Tax, growing the economy marginally faster, and taxing “bad” things like gambling and banks will only get you so far.
Substantial tax rises are needed – CGT equalisation and indexation (£19 billion), or applying NICs fairly to investment and partnership income (£6.1 billion) would be the most obvious revenue raisers – which also promote tax neutrality, reducing distortionary aspects of the tax system and promoting economic growth. Reforming Council Tax with a more proportional property tax could also be designed to raise revenue from the most expensive properties and promote labour mobility. We should do all of these things anyway to fix our broken tax system – and if we want to be a low tax party, lower the headline rates after doing it.
This would just about fund a National Care Service and the Triple Lock for the next 10 or 15 years or so – after that things get more tricky as the dependency ratio rises sharply, and doesn’t fund any of the other expenditure we support, that requires further tax rises.
All this assumes China doesn’t invade Taiwan, the USA doesn’t carry on its path to self-destruction, or the climate crisis doesn’t accelerate and shatter global economic growth, in which case tax cuts are for the birds and the Liz Truss’s of this world.
* Joe Wright is a member in Lambeth and who worked at Lib Dem HQ from 2021 to 2025 developing the party's long-term policies.
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14 Comments
“Low Tax Party” means – Denialist, selfish, irresponsible.
Our courts are years behind schedule, which means justice denied. Our NHS is killing patients in hospital corridors. We are failing to tackle climate change because we are failing to invest in grid infrastructure and much else. Our local councils have been decimated, wrecking social care. All the responsible economic think tanks know that taxes need to rise. To be a “Low Tax Party” is to stand for the decline of the UK.
CGT equalisation with IT by all means, as long as it’s inflation indexed and spread over the life of the asset. There’s a reason why the rate is lower.
As the successor party to the one that raised taxes on the wealthy to fund the introduction of old age pensions I don’t see why Liberals are now looking at taking money away from pensioners.
I haven’t seen the numbers but the current social care set up is a racket for private operators who treat their workers appallingly and the eldery as cash cows. Privatisation has been a disaster and we need to advocate returning care to local authority control as it was prior to 1989.
If we need extra money to fund it how about a land tax or an increase in the rate of inheritance tax?
Thanks for this, Joe. I am only missing a Wealth Tax option. I also support the comments from the two David’s, Allen and Warren. Four problems with Burnham’s removal of the Triple lock. His attempt to disguise its impact on the elderly while claiming it will save £15 billion. Second his bowing to the unfortunate but powerful narrative of inter generational conflict. Thirdly the pensioners are hit soon but the social care reforms are far away, yet another committee report and a General Election away. Lastly not least the unfairness of failing to ask the super rich to contribute too, not a penny, when they could and should contribute even more.
I dont think lib dems should be a low tax or high tax party. I would like them (Or someone else) to be a subsidiarist, consensualist party, whereby levels of taxation are as large or as low as democratic conensus allows, flowing from democratically deciding spending goals, regularly reviewed, resonsive to changes of consensus, and as much as possible devolved to regional or local bodies.
Do we want to be a low-tax party? It seems the leadership wants to fight the next election on that basis, but I detect no great enthusiasm for the idea among the wider party or even the majority of our MPs.
We cannot fund the needs of the people and country if we are a low tax party.
But what are “low taxes” other than just a sound-bite?
With hindsight we can see focusing on “low-taxes” – like the tories have for many decades, has only resulted in a “pennywise pounds stupid” mindset, which in turn has directly led to the mess the country is currently in. the only real way out is investment. For investment (particularly on the scale we now need) a government needs tax revenues: cut taxes and watch the revenues needed for investment disappear, mostly into the pockets of overseas companies, which only really increases the indebitness of the country…
I’ve never thought of us as a low tax party. If we need to do something and it requires additional taxation, then a higher tax is one of the ways to do it. I remember 1p on tax for education.
We should certainly aim to be a low Income Tax Party – allowing people to keep as much of the income they have worked for is a sound principle. We need to be thinking more cleverly about taxes on spending with zero rate taxation on essential goods like food and electricity, standard taxes on buying most other goods and a higher rate of spending taxes on goods that are bad for individuals or the environment
I’m delighted at the general consensus – excluding the Lib Dem leadership (!) – that as the OP puts it, “tax cuts are for the birds”.
Tax is at the centre of dishonest political discourse today. You can’t have European civilisation with American barbarously low tax policies.
Torsten Bell points out, fascinatingly, that our greatest recent increases in overall tax levels took place under – Rishi Sunak! All disguised, of course, by a constant barrage of misleading propaganda about the Tories being a “low tax party”.
https://www.amazon.co.uk/Great-Britain-How-Future-Back/dp/1847928145
The comments have moved to how we pay for it, but I think there is an prior question. The triple lock was our policy and it had a clear job: to catch up after the link to earnings was cut. It has done most of that job. What we have never decided is what happens after the catch-up. What share of an average (or median) wage the state pension should be. Decide that, stick to it, and the yearly increase stops being a political fight. Pensioners get more certainty, not less. And I can explain it in two sentences on a doorstep.
> £17bn of tax cuts to Income Tax and Fuel Duty
So we are said to be proposing increased subsidy for fossil-fuels?
Instead of pushing ahead with a Green transition?
I must have missed the Federal Motion on that one.
We are far behind where we need to be on electricity transmission and EV charging.
Worse, HMG is being asked to tariff lower cost EV imports to save car companies that failed to invest in EV technology. Do not encourage this.
@ Peter Chambers _ ”So we are said to be proposing increased subsidy for fossil-fuels?”
I agree this is a daft proposition. I remember the two times in recent UK history where fuel was circa £2.20 per ltr in today’s money. At the time it was commented upon that fuel was only just reaching the point where people would actually change their behaviour.
So it can be argued that a big contributor to our current problems is that successive governments did not take the hard decision and maintain the fuel escalator and thus rewarded efforts to reduce consumption and used the monies more effectively in energy efficiency schemes and renewables.
It irritates me that my 2002 (2Ltr engined diesel) car consistently delivered 14+ miles/ltr, whilst none of its more modern successors (diesel or unleaded) have got close. Similarly, it seems in the rush to SUV’s and EV’s vendors have dropped their small fuel efficient “about town cars”.