This is a review of the policy paper we will be discussing in Bournemouth.
The next two months in British politics will be crowded with speculation about what Labour will propose in terms of public spending and taxation in the budget, now announced for November 26th. Kemi Badenoch has already accused the government of wanting to raise taxes, without suggesting how she would fill the gap between spending needs and resources available, and the right-wing media are full of calls for tax cuts without clarifying what spending cuts should accompany them. Nigel Farage and Richard Tice are trumpeting tax cuts, while suggesting that cutting government ‘waste’ will be enough to fund them. What should the Liberal Democrat response be?
Anyone who has read Leading the Way, the policy paper which we will debate at our conference in Bournemouth, will be clear on ‘the challenges we face’ and the Liberal Democrat response to them. It quotes the preamble to our constitution’s assertion ‘that no-one shall be enslaved by poverty…’; the list of challenges that follows adds that ‘poverty is too high and rising.’ What’s more, ‘prisons are overcrowded…and understaffed’, regional inequality and failures in infrastructure need redressing, schools are underfunded, the NHS is in crisis, as is social care, SEND provision, investment in skills, and of course funding for local government. ‘We understand that empowering people…requires an active and effective state.’
This is a declaration of social liberal values, against the background of a very difficult domestic and global economic situation. But it’s a declaration that faces a political debate in which right-wing parties and media are busily calling for tax cuts without explaining what spending cuts will go with them. Worse, they are not effectively being called out for doing so by Labour in government, trapped by the cautious rhetoric with which its leaders won the election and the promise that they could revive the UK’s economy and public services without raising major taxes.
That places us as an opposition party in a difficult position. It should not be up to us to explain to the public how deep a hole the UK is in, against the bitter onslaught of the Mail, the Telegraph, GB News and much social media, when the government itself has so far failed to tell the public what is needed, or that we will not get the growth it seeks with greater public as well as private investment. The clear implications of our policy review are that we support an increase in public spending (and therefore in taxation) to make up for the excessive austerity of recent decades and the serious challenges we now face: that is to say, we are in an emergency situation, and have to take emergency measures.
One aspect of the current emergency was not foreseen in the years in which defence spending was being squeezed to pay for rising health and pension costs. The UK is now committed, in principle, to spend at least an additional 1% on defence. I’m astonished by how little this has been admitted in the debate on taxation and spending; neither Badenoch nor Farage take it into account. The Strategic Defence Review was scathing on the shrinking of our capabilities and the threats we are unfit to face. Its authors call for a ‘whole society’ response to the many direct and hybrid threats they identify, though without details on how this will be organized or funded.
Other aspects of our financial emergency were evident long before Labour came into power.
Successive Tory prime ministers and chancellors struggled to manage or ignore them. Margaret Thatcher used revenue from North Sea Oil and privatization sales to fund current spending and keep taxes low. Blair’s Labour government chopped and changed on long-term public investment, while governments since then have let roads and railways, schools, hospitals and prisons deteriorate. Above all, the rise in the number of pensioners acts as a growing weight on welfare and health spending.
We’re not the only country facing this emergency. The USA has run budget deficits of increasing size under successive Republican Administrations, cutting taxes but then failing (when faced with angry voters and lobbies) to adjust spending. French governments, with one of the highest proportions of GDP taken in taxes, have found it impossible to persuade their voters that there’s a limit to what the government can provide. Some argue that democratic government, faced with elderly electorates determined to keep benefits while refusing to pay more for them, cannot resolve these contradictions: that populist parties will win by promising the moon and govern by diverting attention and moving towards authoritarianism – what the Economist calls ‘deficit populism’ leading to financial and political crisis.
I’ve just read Paul Johnson’s Follow the Money: How Much does Britain cost? (2023), which sets out very clearly the constraints within which any British government must work. I’m about to re-read Minouche Shafik’s What We Owe Each Other: a New Social Contract (2021), which I recall as a sober social liberal analysis which should now inform her new role as Starmer’s Chief Economic Adviser. We may find ourselves the budget arrives criticising the government for the timidity and incoherence of its approach, while attacking Tories and Reform for the illusions they are peddling. We should also be talking about serious tax reform, and about tackling the waste in government outsourcing of overpaying housing benefits to private landlords and excessive fees to contractors for SEND and social care. We should instead be promoting the role of not-for-profits, and of local government,in providing public services. There’s a lot more detail to be filled in; but Leading the Way points us in the right direction.
* William Wallace is LibDem peer, a former vice-chair of the Federal Policy Committee and convenor of the party's 1997 manifesto team.
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17 Comments
We have an opportunity to make ourselves relevant by arguing in favour of higher taxes on higher incomes and more expensive houses. We may lose some votes from those with higher incomes and more expensive houses, but hopefully we will be seen as being honest with voters about the need to finance the public spending we need.
The fiscal hole that Labour inherited was largely caused by the reversal of NIC increases necessitated by the huge govt spend caused by covid and the energy price cap. For Labour to say that working people shouldn’t contribute extra is ludicrous. Hiking employers NIC rather than employees was negative for the economy and widened the tax burden between the employee and the self employed. We need a bit of common sense. If you want more revenue from property then update council tax valuations. Also, scrap the triple lock.
@ Russell “Also, scrap the triple lock.”
That’s a sure fire vote loser, Russell, especially after successive Lib Dem Leaders have repeatedly extolled its virtues. As you rightly say “We need a bit of common sense.”, but that ain’t it.
What about clarifying our tax set up and the ways inwhich it is presented?
1) It favours the wealthy
2) The National Debt is, in basic realty a savings and inspurance set up
3) Much of of the “National Debt” is owed to the Bank of England and so is not a real debt
4) The national accounts are not like domestic accounts because domestic accounts cannot create their own money which countries, like ours which have sovereign currencies, can and do.
5) HMG spending comes before taxation and not after it
6) Etc
Please consider contexts.
The U. K. Is the 6th richest nation in terms of private wealth (Wikipedia) with some 25% of our childen semi-starving/permanently underfed. Why?
‘If you want more revenue from property then update council tax valuations. Also, scrap the triple lock’
It’ll be a brave or suicidal government that embarked on those holy grails Russell. I’ve already had year on year record council tax rises. Reeves is wedded to treasury orthodoxy & the OBR. Labour got lucky in 97 – not so much this time around. You fear for their survival if there’s a significant economic downturn. The chancellor is on borrowed time.
We need to acknowlege the scale of the problem.
We have a public sector funding crises.
We have a crises in the social fabric of our country.
Remember after the Brexit referendum in 2016 how we all agreed that Brexit was a sign of serious discontent in the neglected parts of the UK? To solve the causes of Brexit we needed massive investment in those deprived communities.
To fix all this we need an investment of something in the order of £100Billion – and that may well be modest.
And how are we going to raise that amount? We can get a couple of billion here and there by doing various things, the kind of things we talk about at the moment. The great governments of the 20th century; 1906-10 and 1945-50 managed something like it somehow. But noone seems to know how to do it today. If the Lib Dems could propose something with that ambition, we might give the media something worth reporting on?
Geoffrey Payns is right to remind us of “deprived communities” except that this is more of a socialist approach. We Lib Dems prefer to talk about less well off people. Labour often makes mistakes of investing in whole communities and then poorer people in the other communities miss out.
On tax, we really must tell people repeatedly that compared to many developed countries we are NOT a high tax country, but just below average. The problem is an unfair tax system slanted too much towards income tax. The way out is what Brenda Will says about taxing wealthy incomes and I would emphaise transactions and unearned wealth.
@ Nigel Jones. “This is a more socialist approach. We Lib Dem’s prefer to talk about less well off people”.
Sorry, Nigel, but as someone who first joined the Liberal Party way back in 1961, I didn’t think euphemism was one of the principles of Liberalism.
Might a root problem of our society, in most to all of its functions, be the adoption and impostion of Neoliberalism/Austerity?
Neoliberalism is a theory and set of practices which result in:
1) Reduction/removal of essential infrastructures including decently accessible health care, equitable. transparent and effective taxation, properly funded armed forces etc.
2) Profits for the oligarchic few and higher costs and debt for the many
3) Oligarchic rule as shown by the current failure to have a reasonably representative government elected as demonstrated by The Electoral Reform Society. (“This year’s General Election left millions of voices unheard)
4) Profits for the few through financialisation/money going to the financial sector aka. rentiers instead of to necessary goods and services
5) Overt and covert privatisation of essential infrastructures which results in higher costs poorer and/or lost sevices. (N. H. S.? P. F. I. again?)
6) Inevitable deminution of societal stability and increased reduction of the rights to protest
7) Increasing inflation
8) Lack of affordable housing, heating and food for so many
9) ?
It would be more efficient, sustainable, stabilising and kinder to adopt a symbiotic form of capitalism, which results in:
1) Cost savings by reducing/removing the unproductive costs taken by rentiers
2) More money going to regular citizens and their children
3) More moey into societal sustainablity and general benefit
4) Greater genuine democracy resulting from having a more equitable society
5)?
@Russell. The UK state pension is already one of the lowest in Europe. The triple lock merely stops this getting worse.
If we want better state pensions then we will have to pay more for them, which means higher NI payments for people in work and/or higher income tax. An honest political party would say this, not promise the earth but also promise not to increase the main taxes as Labour have done.
Mick: But higher taxes on the well-off retired, for example by combining NI with income tax so that people like me (with a university pension and a wife whose univ pension is happily larger than mine) contribute more for the medical care and social support (and discounted travel) we receive. We are about to go off on an expensive foreign holiday, and expect to meet others who will be on their 2nd or 3rd such outing in a year. A further increase in the retirement age will also be needed soon. But no strategy for higher taxes is possible unless sufficient politicians and media commentators admit the dilemmas that face us. Tories and Reform never will, and Labour is funking it.
@ Mick,
“which means higher NI payments for people in work and/or higher income tax. …”
On an economic level you’re right.
I’m not sure about the politics of it all. Many of those in work are already struggling to afford much higher prices for their accommodation, both rental and mortgage, than the post war generation ever had to pay. We didn’t have to repay any student loans. They do. We had a measure of tax relief on our mortgage payments. They don’t.
They’ll, understandably, be saying that if we wanted higher pensions we should have funded them ourselves.
@ Steve,
A couple of points:
“Much of of the “National Debt” is owed to the Bank of England and so is not a real debt”
It is.
The confusion arises because the mainstream doesn’t consider the monetary base as debt. Money is an IOU and the debt starts when it is created and spent by govt. Once you accept this, it is obvious that the purchase of gilts, by anyone, doesn’t increase the total govt debt. It’s just an asset swap of one type of govt debt for another. Also the purchase of bonds by the BoE neither increases nor decreases the total debt.
“HMG spending comes before taxation and not after it”
The demand for taxation has to come first. Otherwise the currency is worthless. Then the government can spend. The collection of taxation does follow later.
Clearly the triple lock has to go at some point as increase in real terms will eventually become unaffordable. Comparing uk state pension with other countries is unhelpful as the UK has a lot of private pensions other countries don’t. Like care, the triple lock is one of those issues that most people agree needs change but it’s not a vote winner. I’m just saying what the sensible thing to do is.
“Debt: something, usually money that is owed to someone eslse” (Cambridge Dictionary)
Such is the vernacular meaning of the word.
Might it be more transparent, efficient and honest for all parts of H M G, including the Bank of England andthe Treasury to make statements in both “Technical/Specialist Speak” and “ Vernacular Speak” so the the propoertion of the voting population being reasonably and properly informed is maximised?
David Raw, I don’t see my point as being euphemism, on the contrary we often do not put our concerns for individuals, especially the less well off, strongly and bluntly enough. I joined the Liberals in 1969 because although I agreed with Labour’s concern for inequalities I believed it is best tackled by ensuring support and freedoms for individuals without too much state control and blanket policies.
Further to my above post, I read our policy review motion and felt it uninspiring and certainly not worded with a strong message that will attract the wider public. Perhaps it is only for internal consumption and never intended to convey anything to the general public? It is only about policy and as so many now realise the public are not grasped by policy alone. However, even as policy I am not convinced it is radical enough. For example it says we already have good policy on Education, but we are ignoring the calls many outside the party are making for a change in school curriculum; there’s a little about this in the skills motion at conference but nowhere near enough.