Harold Wilson once famously said that “a week is a long time in politics”. Well, the last week feels like an eternity in international politics. Last week, NATO member states received a scolding from the new US Defence Secretary, Pete Hegseth, who warned them not to treat Uncle Sam like “Uncle Sucker” on defence spending. While at the weekend’s Munich Security Conference, US Vice President, JD Vance spouted the ridiculous claim that immigration and tackling hate speech, such as through having safe zones around abortion clinics, were a bigger threat to European democracies than Russia or China.
The wavering of Trump’s America on its security commitments to Europe poses immense questions for Britain. Keir Starmer was right to commit British peacekeepers to Ukraine as part of an international mission. While Ed Davey was right to call for Labour to reverse the Conservatives’ 10,000 troop cutback to the British Army. It is clear that defence spending will have to increase considerably beyond NATO’s 2% of GDP requirement, even beyond the new government target of 2.5%.
But defence is not the only area that requires a considerable increase in public spending. Britain needs new and improved hospitals; the social care crisis needs to be addressed; several local councils are facing bankruptcy; welfare cuts, such as the two-child benefit cap, need to be reversed; and climate change needs to be tackled. All of this heralds a seismic shift in how we as a country facilitate tax and spend policies. In a nutshell, public spending in Britain will need to increase across the board.
One option to increase state spending is by making cutbacks elsewhere. However, after years of austerity, this is unwise. But what could we cut anyway? We cannot cut NHS spending or defence spending. Some schools and prisons are already crumbling, so education and justice are off the table. The welfare, local government and international aid budgets have already experienced deep cutbacks. Finally, we cannot cut back on green policies when we are facing a climate crisis.
What about funding the additional spending through borrowing? Borrowing can offer part of the answer. We should be borrowing to invest in the construction of vital infrastructure projects. Borrowing should also be used in the short term to immediately address the NHS crisis. While some EU nations, such as Spain, are calling for EU-wide borrowing to fund Europe’s necessary defence spending increases. However, we should be cautious. Borrowing is not a silver bullet. We have to be aware of the economic risks of relying too much on borrowing and the potential for a future debt crisis.
What about increasing taxes? Increasing taxes is never popular, but in the current political environment, it is an absolute necessity. However, we Liberal Democrats need to be advancing a very specific argument about taxation. Working people and small businesses should not be taxed more. We need to be increasing taxes on big businesses and the unearned wealth that results from asset ownership.
Taxing asset-based wealth is essential. We should raise additional taxes by taxing wealth not work. What does this mean in concrete policy terms? For starters, we need to increase capital gains tax. It is neither sustainable nor justifiable to tax capital gains at a lower rate than income tax. The rates of capital gains tax and income tax should be equalised. Capital gains tax should therefore be raised so that its tax levels and thresholds are the same as those that currently exist for income tax.
The Liberal Democrats should recommit to our 2010 policy of introducing a mansion tax, levied at 1% on the value of properties above £2 million. Next, we should revisit that radical liberal favourite, a land value tax. A land value tax on landlords should be introduced as a replacement for business rates, a policy we stood on in 2019. Finally, we should increase inheritance tax, a tax designed to target unearned wealth and inherited privilege.
Looking to more conventional tax policies, we must increase taxes on the profits of big businesses. The party rightly supported tripling digital services tax on the social media giants at the general election last year. We should seek to incrementally raise corporation tax on big businesses. This should be done in tandem with closing any tax loopholes that could be exploited by the big multinational corporations.
There is no doubt that the new world (dis)order that is being forged by Trump poses big questions on tax and spend for Britain. Increasing taxes is never politically popular. But we must be honest with people. There is no way to meet our new defence commitments and to save the NHS (along with many other things) without increasing taxation. It is the economically responsible thing to do.
There is no getting away from it; we must increase taxes, especially on asset rich asset-owners and big businesses. Politicians in all parties will have to make some difficult (and potentially unpopular) choices to increase tax. It has to be done and Liberal Democrats have a lot to contribute to this tax and spend debate.
* Paul Hindley is a Liberal Democrat activist and a supporter of the Radical Association from Blackpool. He is the co-editor of When We Speak of Freedom: Radical Liberalism in an Age of Crisis, which was published earlier this year.
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30 Comments
Thank you Paul for that very welcome post and useful list of things which to tax.
Given the already dilapidated state of the public realm further public spending cuts would be absurd: we need to increase spending in almost all areas, but in particular the NHS, the courts, prison and probation area, and local government responsibilities..
Given the international situation we need more on defence, though I’d prefer to see it on boots on the ground for peacekeeping purposes rather than vanity projects like aircraft carriers and an allegedly independent nuclear weapon we can’t use without US permission.
As your list shows, there’s plenty fat geese from which the feathers can be plucked, and no harm will be done if we tax unearned rather than eared income and wealth.
Thank you Paul. The USA is now openly hostile. Starmer risks humiliation by trying to appease Trump. The UK has to re-arm, immediately, with all the sacrifices that will involve. The suggestion that the money needed could be raised by plucking “fat geese” is IMO fanciful. Our leaders must tell the public the truth: there are only 3 taxes which can do the job. Whether it’s VAT, income tax or national insurance, or some combination, is a political choice which needs to be made now.
I would like to see our Party endorse Richard Murphy’s “The Joy of Tax”. As he writes in his final chapter:
“We will tax to increase equality, and in the process we will reduce inequality of income and wealth. We will tax to encourage market activity, and to correct its failures. We will tax to encourage full employment and opportunity for those who work. We will tax to deliver sustainability because we and our children and their children require that. We will tax to build sustainable growth. We will tax openly and transparently. We will tax for the common good, because that is what we believe tax can deliver.”
Let us set out our principles first and then show how our taxes achieve them.
@ Anthony Acton,
“The suggestion that the money needed could be raised by plucking ‘fat geese’ is IMO fanciful. Our leaders must tell the public the truth: there are only 3 taxes which can do the job…… VAT, income tax or national insurance….”
You might want to explain why this the case.
Taxes aren’t just about the associated economics. There’s a huge political element too. If the wealthy are, as they are, becoming ever more wealthy by the year the rest of us won’t be at all willing to pay more tax on our modest earnings if they aren’t paying more tax too.
I’ve seen various claims for what a wealth tax might achieve. Typically they are something like ‘ a 2% levy on individuals who own assets worth more than £10 million, around 0.04% of the UK population, would raise £24 billion a year’
This should be enough for RR’s black hole!
I stupidly forgot to change the author to Paul when I set up this post, so have now changed and edited the comments to refer to him so that they make sense.
I am sure nobody would believe I wrote something this good anyway, but apologies to Paul.
Might now be an appropriate time to work to reduce three of the self-inflicted harms done to our country by its more recent ruling groups?
1) Deindustrialisation – we now have to buy in much of that which we previously made
2) Neoliberalism – the transfer of wealth, not least by changes in taxation, whereby money was/is transferred from the less wealthy to the most wealthy and political discussion and protests are increasingly reduced and/or repressed
3) Uncritical membership of the unstated American Empire
“Why did we act as though everything was real friendship and reliability instead of perceiving the realities of greed and manipulation.” (From Anna Freud)
@Peter Martin – Today’s broadside from Trump has made it even more apparent that the UK begins re-armament immediately. Only income tax, VAT and NI can raise the large sums needed reliably and quickly.
https://conservativehome.com/2025/02/18/lord-ashcroft-were-being-taxed-at-every-avenue-whats-in-it-for-anyone-my-latest-focus-groups/
This is worth reading. Note that two of the four seats polled were Lib Dem gains from the Conservatives.
Clearly the discussions were held before Trump’s latest moves on Ukraine. How easy it will be to persuade voters to pay extra taxes for more public services on top of more tax for defence is anybody’s guess, but I think a wealth tax (as opposed to a mansion tax) must be part of it.
Regarding income tax, VAT and national insurance and corporation tax here’s a useful table showing tax receipts in 23/24:
Public sector current receipts 2023/24: £1,095 billion
OTHER TAXES £95 bn
OTHER RECEIPTS £115 bn
FAGS AND BOOZE £21 bn
FUEL DUTY £25 bn
BUSINESS RATES £27 bn
CAPITAL TAXES £39 bn
COUNCIL TAX £45 bn
CORPORATION TAX £103 bn
VAT £170 bn
NIC £180 bn
Income tax £277 bn
https://researchbriefings.files.parliament.uk/documents/CBP-8513/CBP-8513.pdf
It does not look easy to raise large amounts of money except by VAT, income taxes, corporation taxes and /or NIC.
By way of comparison, inheritance tax raised in 23/24 was a record £7.5 billion.
@Peter Wrigley
Unfortunately “vanity projects like aircraft carriers” are the weapons that deliver the lethal force needed to deter aggressors and win wars.
““vanity projects like aircraft carriers” are the weapons that deliver the lethal force needed to deter aggressors and win wars.” Aircraft carriers allow you to fight in areas where you have no allies. It is vanity to suppose that is still our role.
@Peter Davies
Part of our NATO commitment is to keep the seaway between the North Sea and the Atlantic (via the Shelands) open. Aircraft carriers are crucial in that role.
See for example:https://www.geostrategy.org.uk/research/a-more-lethal-royal-navy-sharpening-britains-naval-power/ and https://rusi.org/explore-our-research/publications/commentary/what-role-royal-navy
I agree that it may no longer be possible (or indeed desirable) to seek to project force in (say) the Indio-pacific. T
Happily there are half a dozen or more Lib Dem MPs with real miliary and diplomatic experience and knowledge (far more than me obviously ). Here’s one worth following: https://www.bigissue.com/news/politics/uk-war-mike-martin-interview-defence-spending-conscription/
@ Tristan Ward “Part of our NATO commitment is to keep the seaway between the North Sea and the Atlantic (via the Shelands – sic ) open. Aircraft carriers are crucial in that role”.
Unfortunately, Tristan, in the modern age, I’m pretty sure any potential enemy would regard an aircraft carrier as a large very slow and highly exposed vulnerable target. If the piston engined Lancasters of 617 Squadron could sink the Tirpitz 80 years ago, what could modern long range missiles do to an aircraft carrier ?
An airfield on Sheltland is a lot harder to sink than an aircraft carrier and a lot cheaper. Iceland and Denmark (still including Greenland) are allies. I’m not disagreeing on the need to spend on defence but we need to be prepared for the next war not the last one. We also need to sort out the basics first. We apparently don’t have enough ammunition for a significant conflict.
“ Anthony Acton 19th Feb ’25 – 7:47pm
@Peter Martin – Today’s broadside from Trump has made it even more apparent that the UK begins re-armament immediately.”
Perhaps we take Trump at his word about his desire for the US to eff3ctkvely exit NATO and Europe and put US military bases in the UK and Europe on notice.
Additionally, with our European allies we need to ensure we have an onshore (ie. UK and Europe based and owned) defense industry. Thus ensure none of the re-armament contracts go to US controlled companies. Like Trump we can play the national security card to force US companies to transfer ownership where beneficial…
Obviously, like Trump these th8ngs need to be socialised as off the cuff remarks, so as to play the media.
@ Anthony Acton,
I think we all agree that VAT, NI and Income tax are the big revenue raisers and this isn’t likely to change in the near future. However there is a political limit to how much these taxes can be raised.
The greater the perception of the tax paying population that the wealthy are avoiding paying what the rest of us would consider to be their fair share, the greater the political difficulty in increasing the rates of taxation on the ‘big three’.
If you want aircraft carriers to do anything they need to be working and have sufficient aircraft, escorts (2 anti air destroyer,2 anti sub frigates, 1 attack sub, 1 refueller). The UK doesn’t have enough aircraft, and would manage the escorts for 1 HMS High Value Target on a good day. Last time I looked 4 of our destroyers were in deep refit because their engines have to be replaced.
Some people view our two new(ish) aircraft carriers as something of a vanity project. The last thing we need at the moment is vanity. We need realism. With Trump’s latest outbursts we should realise who our real friends really are. In fact they are on our doorstep.
I did a bit of checking on availability:
2 destroyers
6 frigate
2 Astute, 1 Trafalgar SSN
35 F35bs (enough for 1 aircraft carrier assuming the RAF gets none)
The government tries and tries again to avoid increasing income tax in an open manner. However most people in the country would now understand if basic income tax went up for everyone by say one penny or even 2.
Fracking must be back on the agenda.
We cannot borrow from the States any more.
Trump’s rhetoric is a wake up call that to deter Putin’s ambitions the UK needs to look to itself and to our European neighbours…Unlike the UK, France has an independent nuclear capability so we should concentrate on conventional weaponry and battle trained regular forces..
In 1940 the US ambassador to the UK (Joseph Kennedy) told the world that ‘Britain wouldn’t last more than three weeks’ and that ‘Democracy in Great Britain is dead’…He supported appeasement and, in September 1940 tried to arrange a secret meeting with Hitler, without the approval of the U. S. Department of State, in order to “bring about a better understanding between the United States and Germany”….
Sound familiar? Kennedy’s words had him ‘diplomatically’ removed and, distrusted and isolated, he took no further part in the war BUT had Trump, rather than Roosevelt, been US president we’d all be speaking German..
In WW1, the fighting on the Western front required heavy guns and vast stockpiles of shells. As this author writes
“…the Treasury’s thinking had always been to deliver the minimal equipment at the cheapest price, and soldiers in 1914–15 paid the price. Part of the problem also lay with the War Office, whose pre–war policy had been to procure light battlefield artillery at the expense of heavy guns. So Britain not only had a shortage of heavy artillery for the siege warfare that evolved in the trenches, but also had no stockpile of ammunition. Worse, there was no manufacturing base to produce shells quickly”. The Struggle to produce Munitions 1915 to 1918
In WW2, aircraft production and maintenance was the key to victory in the Battle of Britain. Britain produced 4,283 Hurricanes and Spitfires in 1940. By the end of WW2 London came under attack by V1 and V2 missiles. Defence against modern missile attack is still rudimetary. “Since the first V2 attack on London in 1944, ballistic missiles have posed a near constant threat to the UK, its overseas interests, and forces. Adversaries continue to invest in and proliferate increasingly advanced ballistic and manoeuvrable threat systems to challenge our freedom of action.” UK launches ‘STORM’ to defend country from missiles
We would do well to take on board the lessons of the Ukraine conflict in making weapons faster and cheaper Ukraine is making weapons ‘faster and cheaper’ than anywhere else in Europe
Expats,
this article discusses Archibald Sinclair’s role in the meetings that rejected peace negotiations with Hitler Archibald Sinclair, the Last War Casualty
“During the last week of May 1940, Belgium was nearing unconditional surrender and France on the verge of capitulation to Hitler. In London, at tense War Cabinet meetings, Prime Minister Winston Churchill faced a critical challenge. Foreign Secretary Lord Halifax was pressing him to pursue peace negotiations, using Mussolini as an intermediary. Fate hung on the Cabinet’s decision.
The most crucial meeting convened at 4:30 p.m. on 27 May. Churchill ensured that Archibald Sinclair, leader of the Liberal Party, was present. His friend and former protégé, Sinclair firmly supported Churchill’s view that no good could come of peace overtures. He was convinced, he said, of the futility of approach to Italy: “Being in a tight corner, any weakness on our part would encourage the Germans and the Italians, and would tend to undermine morale both in this country and in the Dominions.” The suggestion that the British were “prepared to barter away pieces of British territory would have a deplorable effect and would make it difficult for us to continue the desperate struggle which faced us.”
I have commented in a previous thread that two (or more) aircraft carriers offer no protection in this day and age. Drones are being increasingly used to deliver bombs from the air, and it is not difficult to imagine remote-controlled torpedoes which would be difficult to detect and destroy until too late, if despatched from out-of-range vehicles.
The way to raise money should be by taxing unearned income, as suggested by others, although Labour stupidly promised not to tax wealth in their pre-election statements.
Employee NI contributions reduce by 10% above a certain salary level. Why do they not remain the same over the whole salary range? How about a gambling tax on lottery earnings, and a 1% transaction tax on financial markets? A properly-thought-through Land Value Tax would help to make more land available for the 1.5 million new homes promised, and could eliminate some other retrogressive taxes like Business Rates. It is clear that radical action is needed now, in the face of global threats to our security.
Back to taxation. It is true, as Anthony Acton states, that Income Tax, VAT and NICs bring in the biggest tax revenues, (and thanks to Tristran Ward for giving us details of the others. However I do not feel it would be wise to raise the extra revenue we so obviously need from this “Big Three” for two reason.
Firstly, they are all taxes on current economic activity and to tax them further would impede growth, to which the Labour Party are committed (though I wish they would put more emphasis on sustainable growth, rather than growth at any cost, including more tarmac and pollution at Heathrow).
Rather than tax current activity we need to tax unearned income and wealth.
Secondly, the government has a manifesto commitment not to raise any of them. To break this promise would further diminish confidence in our political system and politicians, and encourage the cynicism of “you can’t trust a word any of them say.” They wouldn’t exclude us (remember student fees, even though the new system is infinitely better than the “up front” payments it replaced.)
Professor Richard Murphy, founder of the Tax Justice Network, to whom Laurence Cox refers, has a list of some dozen or so geese that could be plucked. We should use it, even though he does not promise there will be no hissing.
Sorry, TRISTAN Ward.
The standard rate of income tax in Britain was increased to 27.5% in 1938 to help replenish the drained government coffers. There was a 41% surtax on people who had an annual income of more than £50,000. Around ten million people were paying direct taxation by this time. The highest rate of tax in WW2 was 99.5%.
During the immediate post-war years, the programme of nationalisation, the establishment of the welfare state and the cold war kept expenditure almost at the wartime level. It took years for income tax to reduce back to lower rates.
The government managed a gradual reduction in the burden of direct taxation by introducing new taxes and increasing the effectiveness of existing ones after WWII. This included the launch of VAT in 1973 to replace Purchase Tax, which had been introduced in 1940.
On the issue of taxes, I would suggest combining income tax (20%) and employee national insurance (8%) into a single standard rate of income tax of 28% comparable to that of 1938 and applying that rate to all forms of income including rents. investment income, capital gains, corporation tax etc., with a tax credit for dividends to avoid double taxation and rates of 45% and 50% for higher rate and additional rate taxpayers. On land taxes, I would look to include imputed rents from residential property in taxable income with a basic homeowners tax allowance equivalent to local authority housing allowances. Business rates would be assessed on landowners not tenants as per Taxing Land, Not Investment
If the real military experts consider money is better spent on other kinds of high quality weapons systems than aircraft carriers and appropriate naval support (hat tip Jenny Barnes) and not forgetting the need to replenish stocks run down by making contributions to Ukraine that is fine by me. (Though @ David Raw and others airstrips on Shetland or anywhere else must be even slower moving than aircraft carriers – perhaps neither is an effective solution)
The real issue is that Britain equips itself fast with the effective military hardware and trained people necessary to deter aggression – whether or not some may consider it a vanity project . And we also need to create effective arrangements for cooperation with the continental European powers. I think most of the posters here are agreed on this.
Ever since 1979 we have elected successive governments that claim that they want the state to be “leaner and fitter”. We have ended up with a state that is today underfunded and deteriorating. Not only are we spendning money on debt interest, there are also huge compensation claims from leaseholders, WASPI women, Post Office workers and many others.
I often wonder how much money we need today to fix it. £100Billion? £200Billion? Just think what we need to spend the money on. I can’t think about raising defence spending to 2.5% without also thinking of overseas aid spending needing to be returned to 0.7%. Then we have to consider NHS, Social Care, infrastructure (can we afford HS2?), school buildings, social housing, local government, GBI (a policy derived from UBI which the party no longer talks about).
The difficulty with borrowing more today compared to the Coalition years – a time when we also had low growth – is that interest rates are higher today.
The question I have is how much money can we raise from the rich – the only people who can afford to pay more taxes? The rich of course are notoriously good at not paying taxes.
I wonder if Land Value Taxation (LVT) is the best option we have to do this? Would there be a need for a mansion tax if we have LVT? I think we should implement it, but I doubt it can raise £100Billion. I am not sure what can.
White House officials have told Ukraine to stop badmouthing Donald Trump and to sign a deal handing over half of the country’s mineral wealth to the US, saying a failure to do so would be unacceptable….
In the immediate aftermath of the US civil war the Americans had a word for people like Trump… .’Carpetbagger’
Aircraft carriers…
Just an injection of realism. It took 10 years to build the two we currently have, and the US is slowly delivering the aircraft that are fly from them…