Danny Alexander writes… the Lib Dems’ tax-cutting agenda

Liberal Democrats want Britain to be fairer. That simple, principled commitment has always been core to our beliefs – and always will. That’s why Liberal Democrats will go into the next general election promising big tax cuts for ordinary people and families. From the poorest up, we want to cut taxes for those struggling to make ends meet in the face of today’s severe economic problems.

There’s been a lot of debate recently about where we’ll find the money to make these tax cuts. First, we’ll make sure everyone pays their fair share. There’ll be no more special exemptions for the wealthy, we’ll do everything we can to stop tax avoidance, and green taxes will rise so polluters pay to clean up the damage they cause.

But, so we can deepen those tax cuts for people who really need them, we’ll also look in detail at the government books and make sure there’s none of taxpayers’ hard-earned money that’s being wasted and should be given back.

Government spending has more than doubled since Labour came to power, and it’s clear that not all of this money has been spent wisely. From ID cards to the Eurofighter, from means-tested benefits for families on £60,000 a year to excessive government inspection of local councils: Labour has poured our money into projects that we don’t need or don’t work.

Liberal Democrats will end about £20bn of this wasteful government spending – this is the “spending review” process Vince Cable’s team has been leading. We don’t yet know the final outcome of this review – but I can guarantee it won’t involve trimming investment in frontline services.

Much of the money we identify with this spending review will be reallocated to our own priorities for additional spending. The manifesto group, which I lead, is busy identifying those spending priorities, like the pupil premium to bring investment in the poorest children up to private school levels.

But if there is money to spare, as Nick Clegg said this weekend, we will channel the vast bulk of it into going further with our tax cuts for low and middle income families. Sadly, some may have to go to filling up the black hole in the government finances that Labour’s economic mismanagement has created, but the vast majority of the “spare” money will go straight back to ordinary people and families.

A general election may still be up to a year and a half away, so we can’t yet decide the exact details of what goes into our manifesto. There’ll be two government budgets between now and then, and there’s no telling what will happen to the economy. So at this stage, it’s all about principles. Ours are simple.

Ordinary families pay too much tax: we’ll help them by giving some of their money back. The very wealthy and those who pollute pay too little tax: we’ll make them pay their fair share. And we’ll switch wasteful government spending to our key spending commitments, and, if there is money left over, to cutting taxes even further for people who are struggling.

* Danny Alexander MP is Chair of the party’s Manifesto Group.

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29 Comments

  • Hywel Morgan 11th Sep '08 - 2:20pm

    That seems substantially clearer than Nick was last week 🙂 Have I now got this right

    We would cut basic income tax to 16p – paid for by a mixture of tax changes on the very well off (tax on pension contributions etc) and green taxes.

    Additionally we’re aiming to find £20bn of savings (on a revenue basis I assume) to do this. The priority for spending those is:
    1) Our additional spending commitments
    2) Filling the government’s black hole in its finances
    3) Tax cuts for lower & middle income people (note not families!)

    It’s fair to say then that talk of us offering £20bn of tax cuts are very wide of the mark.

  • Clegg's Candid Friend 11th Sep '08 - 2:35pm

    The story seems to be changing on a daily basis now. (And I’ve noted that the Mail has an article today entitled “Lib Dems pledge to cut taxes and slash spending to ease recession pain”, in which a “big chunk” of the £20bn is supposed to go towards tax cuts!)

    However it’s rehashed and finessed, it’s really difficult to see how any of this makes sense.

    These £20bn of savings, apparently, were (essentially) originally proposed two years ago, so that the money could be reallocated to our spending priorities. Julia Goldsworthy was going to identify them. So, for one thing, it’s a mystery why they still haven’t been identified two years on.

    But apart from that, it’s obvious that if part of the money that was to go to our spending priorities is going to go to something else – whether it’s filling the black hole or a “big chunk” of tax cuts – then less can be spent on our priorities.

    Once they’ve agreed on a line they are capable of repeating reasonably accurately in media interviews, maybe the front bench can give us some kind of indication of where the £20bn of cuts are going to come from, and which of our previous spending commitments are going to be cut to allow them to direct the money elsewhere…

  • Sounds more like we’re tacking to the left and the right simulataneously.

    Something for everybody to love, hate and get confused about all at the same time – excellent!

  • Most money that is taxed has already been taxed. VAT is charged on the expenditure of income that has already been taxed.

    The real problem with IHT is that it’s taxed based on the size of the estate not on the income of the recipients.

  • Andrew Tennant 11th Sep '08 - 6:35pm

    The real problem with Inheritance Tax is that it’s far too low! High amounts inherited keep prices artificially high, with houses affordable only for those that will inherit the cash; those who start out in life lower have to rent and live off the scraps! We have a society where money makes money and wealth makes wealth; the nation’s money is increasingly concentrated in the privileged few with many, even the hard working and well educated little hope of a breakthrough. Surely if we want a meritocracy we should be awarding those that achieve in this generation by raising the personal allowance and decreasing income tax as far as possible; raising inheritance tax and tax on dividends to provide the funds. Only tax it once, fair enough, but choose the right one to drop; encourage people to aspire to a standard of living, but to earn and spend their way there…

  • Andrew Duffield 11th Sep '08 - 6:59pm

    “There’ll be no more special exemptions for the wealthy”… apart from allowing them reap even more unearned riches by scrapping residential taxation so that their multi-million pound pads, piles and property portfolios can appreciate faster and further of course (current economic hiccup excepted).

  • Paul Griffiths 11th Sep '08 - 7:36pm

    In an attempt to balance up the pro and anti comments on this and similar posts, I’d like to say that personally, although I didn’t vote for the guy, I trust Nick’s liberal instincts and am not sceptical about his intentions.

  • Clegg's Candid Friend 12th Sep '08 - 11:45am

    Here we go again.

    Last week Ed Davey was saying we couldn’t guarantee there would be money left over for tax cuts from the hypothetical £20bn savings. Then Clegg told the Telegraph the vast bulk of the £20bn would go to tax cuts. Then Clegg told Radio 4 that there would only be tax cuts if there was money left over, and appeared to accept that there might not be. Then in the Evening Standard it was a “big chunk” of the £20bn again. Then Danny Alexander tried to square all these statements by saying that it was the vast majority of the money left over that would go to tax cuts.

    Now in the Guardian Clegg is back to promising tax cuts “in the billions”:
    http://www.guardian.co.uk/politics/2008/sep/12/libdemconference.liberaldemocrats

  • CCF, all I’m getting from you is a feeling of unease over the use of language to try to describe the policy, not any actual criticism of the policy.

    This could easily be overcome by finding a form of consistent phrasiology which doesn’t depend upon multiple usage of the term ‘savings’ – which can lead to obvious confusion.

    As I see it the policy is to reduce expenditure by as much as £20bn (though it could be more or less), this would allow for reallocation onto our priorities with any remainder going on tax cuts. The size of the tax cuts will depend on the amount remaining.

    This reflects a clearly liberal midset that spending will be determined according to principle AND according to income – implying that the role of the state is to be limited actively by the government not passively by revenues (which is an important, if subtle, point).

    It doesn’t mean that overall spending is to be cut, necessarily, though some trimming is desirable in the several areas outlined. What it does mean is that we recognise budgets need to be balanced and we need to replace the sense of economic disorder at the treasury.

    Spare cash does not mean we can afford to go on an impulsive shopping spree – spare cash means we have breathing space to make better and more longer-term plans.

  • Clegg's Candid Friend 12th Sep '08 - 12:33pm

    James Graham:
    “CCF – given the mess, do you still contend that the party will be resigned to go along with whatever Clegg tells them to on Monday?”

    I should like to think not, but Clegg is pushing this line so hard (albeit very inconsistently) and making it so personal, that the pressure to go along with it will be enormous.

  • James, unless you can tell me I’m wrong in my understanding of the principle which we’re being asked to endorse then I’m happy to endorse it – though you’re absolutely correct that it would be preferable to hear Clegg spell it out for our sake (although for our opponents sake leaving them in confusion is no bad thing, as I’m happy to recieve support from anywhere we can get it).

  • Grammar Police 12th Sep '08 - 1:20pm

    “Ordinary families pay too much tax” – no Danny, ordinary people pay too much in tax.

  • James, this is the classic political bind – how can we provide exact details when we can’t perform due diligence?

    Getting into a squabble where there can be no final answers does two things – firstly it places us at the centre of debate showing our relevance while giving us the opportunity to indulge in a bloodbath, and secondly, it removes the spotlight from our opponents failure to answer the same questions while removing the onus from them to articulate their (lack of) answers to the same questions we are being faced with at this point.

    If we had a precisely-detailed and fully-costed manifesto ready with our publishers at a stage this far out from a general election we’d be ridiculed for not taking into account the way things will change between now and then, while also providing our enemies the opportunity to pick over all our ideas and choose the best for themselves all the while rubbishing our complete package.

    The best that is acceptable for now is to have full agreement on the full range of coherent principles we wish to develop into detailed policy, building on a track record of good sense in being able to cope with the practise of continual ongoing adjustment.

    So to adapt your metaphor our pen is hovering as we are being asked to calculate the sum on the cheque, signing will come later.

  • Agreed. The language we use is vital.

    And I would add your own critique of the Conservatives pointing out that they haven’t even gone as far as we have in mapping out their alternative position or even how we could form any judgement of what their ‘alternative’ might consist of.

  • On a philosophical level, it is depressing how many people appear to think that reducing the tax burden is something that should only be contemplated when every other way of allocating the money has been exhausted, rather than one important means by which to bring about a more liberal society (in this case economically).

    The underlying assumption seems to be that public money belongs to the government, which bestows all sorts of gifts upon various client groups and if it is a particularly generous mood maight just consider handing taxpayers back some cash.

    This is a fundamentally illiberal concept of the role of the state in my view, one that Gordon Brown would no doubt wholeheartedly endorse.

    I have more sympathy for the argument that we shouldn’t commit to handing back the “vast bulk” of any potential savings in tax cuts because of the state of the public finances (ie the structural budget deficit).

    But if this is as serious a problem as some people suggest, then we cannot blithely go ahead with a shopping list of spending commitments as if they are unalterable and cannot be revisited in the light of economic realities. Instead we should be reallocating money that was earmarked for extra items of spending into reducing government borrowing.

    So to be clear: If there isn’t enough money for tax cuts because of the state of the economy and the public finances, then there isn’t enough money for new spending either.

    In reality, what many people here are saying is that there isn’t enough money for tax cuts NOT because of the need to reduce borrowing, but because of all those lovely ideas we’ve got for spending that money different ways. That’s a matter of political choice, not of economic necessity or fiscal rectitude.

    It implies that – even at a time when the tax burden is rising and public spending has had seven years of rapid growth – we should give extra spending a higher priority than tax cuts.

    I think that position is mistaken both economically and philosophically; and also misjudges the public mood.

    I would rather objectives like taking low earners out of the direct tax system altogether (income tax and NICs), lowering the basic rate to benefit middle earners and simplifying and reducing the scope of tax credits (so that we are not paying state beenfits to above average earners) were seen as central to a liberal programme and not optional extras if we have any loose change left from continuing to feed a huge government machine.

  • Alex, I agree and disagree.

    Yes, in the long run tax-cutting is a desirable process for the whole of society, but in the short-term tax spending is a consequence of the failure of society.

    Before we can make society fairer we will have to start sorting out the messes that both Labour and the Conservatives have got us into in consecutive periods of government – we can’t raise the big sail of liberty at the moment because we are in danger of capsizing.

    So set ourselves on an even keel first and then power ahead!

  • This is so depressing. It’s like watching a high school social studies class doing a role-play exercise.

    Earth Calling Lib Dems, Earth Calling Lib Dems… please initiate reality check, over.

    FFS people, it doesn’t matter how good, bad or indifferent our specific policies are. It doesn’t matter whether our fantasy budgets add up. It doesn’t matter where we would set the income tax thresholds or how we would improve efficiency in the NHS or how we would restructure investment in research into renewable energy or how we’d reform road tax or any other one of the million policies a party needs to have if it wants to get into government, because… get this: we are not going to get into government, and every single voter in this country knows it!

    Nobody votes for a party that can’t possibly form a government based on what it promises to do when it forms a government, people vote for a party that can’t possibly form a government based on whatever principle they think their vote expresses or whatever message they think it sends to those parties that can from a government.

    The challenge the Lib Dems face isn’t to convince everyone that we’d do a fine job of running the country, the challenge the Lib Dems face is to give voters a reason to vote for us even in the certain knowledge that we aren’t going to be running the country, and these masturbatory policy debates are completely counter-productive because they waste some of our precious air-time and column space shining a spot-light on issues which voters can only realistically influence by voting for someone else!

    Talk about fighting battles on your enemies’ terms…

  • Alex Sabine 14th Sep '08 - 1:09am

    Surely what counts as “fighting battles on your enemies’ terms” is to accept their arrogant premise that it doesn’t matter what we say or what policies we have since we will never have a snowball’s chance in Hell of implementing them.

    For the sake of argument let’s accept your point that we’re unlikely to form a government any time soon. That does NOT absolve us from the need to cost policies properly and generally behave like a responsible political party rather than some noisy pressure group.

    The real self-indulgence is not having policy debates but your belief that we can promise everything under the sun without deigning to explain how we intend to achieve or pay for it.

    You say people vote for us based on our principles, not because they have studied our policies, and I agree there’s probably some truth in that.

    But if we abandon the attempt to forge a connection between the two then the only principle they will be voting for is motherhood and apple pie.

    Of course, that’s precisely what our opponents say about us anyway, isn’t it? Which is rather where we came in…

  • Alex Sabine 14th Sep '08 - 1:36am

    Oranjepan – I’m arguing for lower taxation for reasons of liberal philosophy and not just on economic/utilitarian grounds.

    I’m not sure exactly what you are referring to when you talk about sorting out the messes created by successive Conservative and Labour governments (there are plenty to choose from).

    But if you mean that it is all very well arguing for tax cuts but first we have to repair the ropey public finances, then I absolutely agree.

    I would add one caveat, though: Certain measures intended to reduce the deficit might tip the economy over the edge into recession and thus increase the deficit; while well-designed tax cuts for those on low and middle incomes (who tend to spend more of their incomes than the wealthy) might help to stave off a deep recession and thereby prevent a collapse of the public finances.

    Given the current situation, a responsible government would aim to progressively restore balance in the public finances as the economy pulls out of recession (Ken Clarke went some way towards doing this in 1993-97 after the fiscal disasters of 1989-92), and thereafter to lock in the gains through proper budget discipline.

    This would bring about a fiscal dividend in the form of lower debt service costs, which could then be returned to taxpayers or (depending on priorities and the requirements at the time) recycled into more productive public spending.

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