I am an “Orange Book” Lib Dem – I think we should have taxes as low as possible because people make the best decisions about how to spend their own money. That doesn’t of course mean that we don’t need taxes – there are lots of things the state needs to do to ensure everyone a decent society – and tax as a % of GDP is currently a Post war high.
But it’s very clear that our failure to adequately fund our Defences is putting our future as a safe, democratic nation at risk. John Healey’s resignation letter could hardly be clearer:
You [Starmer] spelled out the threats last week: “It is our intelligence assessment, and the assessment of other countries in Nato, that there could be an attack by Russia on Nato as soon as 2030.
And he says the proposed backloaded plan
falls well short of what is required for defence and the country at this dangerous time
Ed Davey has called for an extra £20bn to be funded via ‘Defence Bonds’ but there is no clarity how these differ from any other Government borrowing nor does it seem sensible to add yet further to the UK’s massive debts.
So how to fund the defences we need ? Its become a tradition in our Party along with our many, many calls for extra spending, to propose all sorts of complicated extra taxes on unpopular groups – how many times have we spent the windfall taxes? But if we want to raise large sums , with certainty and quickly, there are only 3 ways to do it. NI , Income Tax or VAT.
I think we can rule out NI very easily -we have seen the damage the Government’s recent increase has done. Income Tax can raise a lot of money – a 1p increase in the basic rate would raise £8bn. A 1p increase in the higher rate would raise £2bn. That might be needed but I am concerned about the effects on incentives to work.
A VAT increase from 20-21% would raise £9bn.
My recommendation would be to put VAT to 22% and an increase in the higher rate of income tax to 41p in the £ which would raise an extra £20bn a year – but what ever option we choose we need to take a lead.
No Party want to propose tax rises which will affect most people – but sometimes its important to do the right thing and this is one of them
* Simon McGrath is a Councillor in Wimbledon and is a member of the Federal Policy Committee and Federal Council.
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37 Comments
I rather thought the Lib Dems campaigned against a vat bombshell back in 2010.
Good article Simon.
I don’t know what tax we should propose, but I do think credibility requires us to propose something that would involve electoral risk and which would add to the pain felt by many people.
My only other concern – as someone who I should make clear has not read the defence review – is that (like the Treasury?) I am very, very concerned about the MOD’s ability to spend the money productively. That’s a comment aimed both at it being bad at procurement and cost-control but also at buying the right equipment.
As the most serious imminent threat we face is Russia I think a case can be made that every £1 we donate to Ukrainian military spending will go a lot further towards meeting the UK’s defence needs than anything we could spend it on at home.
“credibility requires us to propose something that would involve electoral risk and which would add to the pain felt by many people.”
To be clear… this isn’t an attempt to relive the coalition’s relish for cutting as a sign of macho commitment to austerity. Rather, it’s to agree with your argument that there simply isn’t a pain-free way to generate the funding we need for defence.
Agreed with Jonathan Brown here. The UK’s defence spending is, in absolute terms, either 5th or 6th in the world depending on which source you go by – only behind the three superpowers of the US, Russia and China, Germany, and possibly the semi-superpower of India. If we have trouble producing a working military force on that basis, our problem is probably not a lack of money. Ukraine is in the middle of an all-out war for its survival, burning millions of dollars a day on ammunition, weapons, and replacements for destroyed vehicles, and still spends less in absolute $ terms than we do.
More money will also not address the UK military’s substantial and consistent recruitment problem. We can funnel all the taxpayer money we like to arms manufacturers for shiny new weapons and it still won’t do us any good in a war if young people can’t be convinced that dying for their politicians is a good career. Are the Lib Dems proposing to reintroduce conscription to cover the gap? If not, what is the plan?
Thanks for being prepared to think outside an “Orange Book” box!
By contrast, however, broadly I believe that if we are to fix broken Britain – from the climate crisis through the NHS crisis down to the pothole crisis – we do need tax rises. Borrowing through the bond markets has probably just about reached its viable limits.
Nevertheless, I’m not sure that the “Defence Bonds” idea should be overlooked. That could tap into the savings of the patriotic well-off, who could afford the slight sacrifice of a lowish interest-rate bond, and feel good about supporting Britain’s defences. It would take stagnant money out of cash ISAs, as Government has long been trying to do, and pump that money into manufacturing investment, hence creating growth. And it would also make it easier to put more tax revenues into decarbonisation, the NHS, and potholes!
@David Raw – you think we should not change our minds about something after 16 years ?
We broadly agree for once. I regard it as “stopped clock syndrome” – right once in 24 hours!
However, I prefer income tax.
Surely it’s NATO that should organise the defence spending of its member nations, not individual countries doing its own thing.
I’m with Gordon Lishman on this one but nice to be in broad agreement with Simon!
@ Simon McGrath “you think we should not change our minds about something after 16 years ?”
The Lib Dem Ministers changed their minds in less than twelve months back in 2010, having issued a PPB about broken promises, Simon.
Happy to agree with Gordon Lishman – a VAT rise has a heavier impact on the less fortunate and on the inflation index.
I agree we need to raise taxes for this and other spending needed.
However not VAT, that impacts on poorer people on a lot of things they have to spend money on (someone else will know just what).
Income tax can be looked at in more ways that 1p on…. and we need to explore those.
We do need to spend on defence, but not nuclear weapons. I have no idea of the need for more money on such as cyber attacks, and if that comes under the heading of defence, but is very important.
I would wonder whether it’s possible to make VAT more progressive by identifying those items that wealthy people don’t actually spend much more on and exempting them. I’m sure there are allot more such items than the bare essentials currently zero rated.
One could then increase VAT perhaps as high as 25%.
“(like the Treasury?) I am very, very concerned about the MOD’s ability to spend the money productively. That’s a comment aimed both at it being bad at procurement and cost-control but also at buying the right equipment.”
Seconded.
And equiment which works and can can be used by the troops who need it – bearing in mind the issue of the Ajax armoured vehicles which appear to lead to the troops using them being sick.
It was being pointed out on TV news programs that the nature of warfare is changing – the UK needs to buy the right equpment for when it is needed and not focus on large military ships which seem to take for ever to build and bring into use.
Thank you Simon – I agree that a tax rise is the way to fund increased defence expenditure.
My issue with Defence Bonds is not that it increases borrowing, but that a short, sharp injection of £20bn over two years is the wrong way to do it. What is needed is a long-term (10+ years) reliable budget that the MOD can plan against, and taxation is the logical way to provide that.
@cim – it’s true that the UK has one of the largest defence budgets. The problem is that nearly a quarter of that goes on nuclear (with very little oversight or accountability). Germany will soon be spending twice as much as us on conventional defence.
For decades, the UK’s armed forces have been burdened with Government ambitions beyond the funding provided, aspiring to be a global force with a regional budget. This has left us with unbalanced forces, yawning capability gaps and obsolete equipment.
We probably do need to increase tax to fund defence. Borrowing depends on the markets beleiving that the country can afford to pay it back, which would require more taxation in the future + the interest, so better to increase the taxes now.
However, I can see the Treasury reluctance to hand over billions to a dysfunctional procurement agency like the MOD. The standout project is Ajax, which should be immediately cancelled. The German Puma or the Korean k21 off the shelf would be better.
I’m unconvinced that running two unreliable aircraft carriers with insufficient escorts is a good use of funding. A carrier battle group needs at least 1 destroyer (anti-air), 1 frigate (anti-sub), 1 attack sub and a fleet auxiliary/refueller. All 5 Astutes are in dock, frigates falling apart, and only 1 destroyer available – which is in the Middle East.
Typhoons & funding for the 6th gen Tempest project looks like a better investment than f35s – the F35Bs are severely compromised by the need to operate from carriers without cats/traps, but are probably worth keeping till Tempest arrives.
@Nick Baird – Even taking a quarter off the UK’s budget would still keep us comfortably in the top 10 for all countries and ahead of the (also nuclear-armed) France. If that means stopping pretending that the British Empire is still a global power, let’s just stop doing that.
It has been perfectly obvious since the start of trump’s second term that UK defence spending must rise. The political difficulty is equally obvious given the mess the economy was and is now in..
The silver lining is that there is a counter narrative we can develop that may gain some traction against Reform and the right’ s likely preposterous claim that “only they can be trusted to defend Britain etc.
It is the right’s pin up boy Trump who is deserting Europe and whose actions in Iran are hitting our economy again.
It is Conservative/Reform Brexit that damaged Britain’s economy so that defence funding cannot be funded from growth
It is Farage’s mate Putin who is the immediate military threat to the UK and our European Allies
And it is the global instability driven by Trump and his followers that make it impetrative that Britain develops new closer military and economic alliances with the European States.
And to his credit Ed Davey has been saying much of this for the last 18 months.
> The standout project is Ajax, which should be immediately cancelled.
Oh if only! Ben Wallace confided that “the money is spent” and that if the programme was at a much earlier stage “we should just buy CV-90”. This sounds plausible.
Publicity material around Ajax seems to indicate that the programme is in a Denial Phase – problems are with the crews not the vehicles – and the trajectory is roughly following that of the SA-80 rifle. This will not help recruitment and retention.
I would say that good procurement decisions would require removing the Buy American culture, removing the perverse incentives (hello Treasury!), and filling DE&S and the Capability functions with really good people. Which would involve fixing recruitment and retention. Ditto for the Defence Industrial Base.
Ajax should of course have been cancelled years ago. Unfortunately due to the sunk costs the MOD and Government seem to be converging on a plan to spend another billion fixing it on the basis that this will be quicker and cheaper than binning it and starting again. Which rewards General Dynamics for failure, but in the face of a shortage of money might regrettably be the only way forward.
But DE&S isn’t staffed by idiots, or people that don’t care, so the bigger question is why do we keep ending up in this position? The answer is both structural and political, and probably worthy of an LDV article of its own one day.
The Russian army is bogged down east of the Dnieper River in Eastern Ukraine. What possible motive does it have to attack anyone outside the conflict that has been going on for 12 years? Our territorial borders are not under threat, and we’ve already committed up to £15 billion to Ukraine across this parliament.
A VAT rise impacts the poorest the most. Communities are desperate for investment after years of austerity, and having the misfortune of visiting the town I grew up in recently, it’s become barely recognizable and not for the better. Billions would be better spent on communities – not munitions.
While ultimately Starmer is responsible for the fiasco regarding defence spending, because the buck stops at the top, criticism of him lets the former Defence Secretary John Healey and the current Chancellor Rachel Reeves off the hook too lightly. The shortcomings of the MoD have been known for decades, but successive Tory and Labour governments have ducked addressing the problem, while the Treasury has seen its role as simply saying “No”, rather than working with the MoD to get much better value for money in defence spending.
France spends about the same amount on defence as the UK but its defence resources and capabilities greatly exceed those of the UK because of inefficient UK procurement processes and excessive overheads per soldier. John Healey and his junior minister Al Carns made no effort to start tackling these issues, simply demanding more money from the Treasury.
We are where we are, and increased defence spending cannot wait, but at the same time we need a thorough review of what can be done to address the dysfunctional MoD, making service chiefs responsible for ensuring we get value for money.
Also we need to cut our reliance on the US for our nuclear deterrent, and work closely with the French to have a truly independent (and arguably cheaper) capability.
“We-need-a-tax-rise…. ”
OK but what sort of tax rise?
So far I’ve only seen mention of NI, VAT and Income Tax. The argument being that these are the tried and tested taxes. The others, presumably, are all untested. But all taxes are untested initially, before they are and found to work reasonably well.
Joe Bourke seems to have gone quiet recently. He was always writing in favour of a Land Value Tax. How about giving that a try? The Liberals used to be generally supportive of the idea. Joe always argued that it was an easy one to collect.
In addition, how about an equity tax on property and housing? It doesn’t have to be huge. If it was say 0.5% a houseowner with a house valued at £500k would have an annual tax bill of £2.5k What would make that hard to collect?
A young person who was starting out and who only had an equity of, say, £50k in their property would have a much lower tax bill of £250 p.a. We could even make that £0 if everyone was allowed £50k tax free. Anyone renting would also not pay the tax.
We can top that up with a wealth tax. It may work or it may not. But, if we aren’t going to be totally reliant on it there’s no harm in giving it a try.
The problem with all of our government, is that it is reversed engineered, we start with how much money have we got, what shall we spend it on.
Across government, and particularly in defence we should start with:
What do we want to achieve?
What do we need to do it?
How much money d we need?
The current approach wastes money on tokenistic policies and gimmicks, whilst providing poor outcomes.
1p on Incone tax whilst raising the threshold on basic tax charges.
When basic tax on earned income was 32%, the majority of Lib-Dems were prepared to raise it to 33%. Now after a desperate pre-election give-away by the Tories, we consider it daring (and Labour suicidal) to consider 29%. We should decide our tax rates on economic considerations not by how much we are prepared to differ from other parties.
Land Value Tax – on what basis should land be valued and how much work would there be in carrying out the valuation across the country?
Exact valuation of land is difficult as in most areas it is seldom sold as a separate entity. Initially it should be introduced at a very low rate so inaccuracies matter less. The country could be divided into areas. initially quite large ones such as local authorities or postcode areas. These would be split further by land use permissions (e.g. domestic, agricultural). Within those divisions we could take a rolling, date weighted, inflation adjusted average of land sale prices per square metre. The land registry should already have areas for each holding. This is quite a cheap way of assessing values and can largely be automated. We would probably want to add a bit more sophistication (and cost) before raising rates to raise a significant proportion of revenue.
At this point in time, our defence budget is the least of our worries. The greatest threat right now to the UK and frankly the rest of the world is not Russia, it is AIPAC and its political grip on the US war machine. Fool that he is, Trump desperately wants an off-ramp from his stupid conflict with Iran, which in truth was instigated at the request of AIPAC and Netanyahu. However AIPAC, do NOT want a ceasefire nor an off-ramp, and they want to keep the war going using the US military machine.
If AIPAC continue to keep the Iran war going, (and they will), the Strait of Hormuz will remain closed to crude oil, diesel, fertilizer, Helium, and LPG. Consequently, if AIPAC are allowed to keep revving-up this pointless war, then the greatest threat to the UK citizens will be empty supermarket shelves by November.
“The land registry should already have areas for each holding.”
According to https://www.landregistry.org.uk/faq/
“Not all land is registered, and there can be a number of reasons for this. The land may have been owned by one family for years or generations without the event that would normally trigger the first registration, such as a sale or mortgage, occurring.
Despite the fact that not all land is registered, the current Land Registry holds details of more than 20 million properties that are registered in England and Wales. There remain many millions of properties that haven’t yet been registered, and the Land Registry doesn’t hold records on these.”
What sort of taxes? Well, given the need for a some fossil fuel demand destruction for 1) supply loss from Hormuz closure and 2) risk of excessive global temp increase, I suggest:
Aviation fuel (in conjunctiion with our European friends) . If that doesn’t work Airline Passenger Duty.
and Road fuel, which would have the added benefit of helping a modal switch to active travel or electric vehicles.
Well, LibDemVoice keeps posting articles about the need to be “radical”, so maybe a radical move might be to stop being one of only 4 countries in the world that run their military on an expeditionary basis, and instead change to a defensive military like every other European country – with the exception of France.
If the aim was to simply defend this country and other NATO members, then we could get a lot more bang for out buck.
Small arms training for everyone (not unusual in other European countries) and a return to the old territorial army units, and this time keep them as territorial units; the territorial army was never intended to be used in wars in the middle east. Expansion of special forces, investment in drones, air defence, naval power in the form of surface drones, mini subs and MTB type boats. No more stupid aircraft carriers and similar expensive toys.
Oh, and stop giving guarantees to countries in other parts of the world… but this require getting rid of the Imperial mindset, and I don’t see that happening any time soon. As on general said about 20 years ago “but, but, but we’d be like Belgium”.
I disagree with raising income tax, NI or VAT. We need to be taxing those assets that rich people are able to move offshore – let’s start by taxing the ownership of land. Even just 1% of the value per year would soon add up and if it forces some landowners to sell some of their holdings, so much the better.
Sorry, meant to say ‘not able to move offshore’.
Putin first attacked Ukraine in 2014; four years after his Feb 2022 attack he has still not succeeded in defeating that single nation… The idea that he poses a serious military threat to the European nations of NATO is fanciful..
The raison d’etre of every government department is to maximise its case for funding; in that the MoD is no different than the DWP. MoJ, DHS, etc. Ministers who fail to get what they want have two options, to settle for what they are given or to resign; the MoD chiefs chose the latter..
Despite an abysmal record of procurement the MoD may well wish to upgrade our defence spending BUT that should, to avoid duplication and dead ends. include a far closer relationship, on spending and expertise, with our European NATO partners.. After all, any further incursion of Russia into Europe (no matter how unlikely, won’t start with the UK..
https://www.theguardian.com/commentisfree/2026/jun/14/vladimir-putin-ukraine-war-borders-russian-president
Other commentators think it’s quite probable
” The idea that he poses a serious military threat to the European nations of NATO is fanciful.”
Yes. It is.
Russia has a population of around 145 million. It’s GDP is $2.6 trillion. This is about the same GDP as Italy. The EU has a population of 451 million and a GDP of $23 trillion. Add in the UK’s 70 million and $3 trillion and it is quite obvious that a Russia that can’t defeat Ukraine (30-40 million, $0.25 trillion) isn’t going to be much of a threat in conventional terms to western Europe.
The counter argument might be that Russia has nuclear weapons. Both sides do, but increasing our defence spending to 3.5% of GDP isn’t going to do anything to reduce the chances of these ever being used.
I broadly agree with comrade Simon, although the extra problem with raising taxes is that we also have a cost of living crises, so people on low to medium incomes can’t afford to pay more taxes. In addition there are lots of other demands on the public purse in local government, overseas aid, NHS and in social care. Also there is going to be a terrible economic shock from the war in Iran, it will take a long time to recover from the closing of the Strait of Hormuz, we could have serious food shortages this autumn. The government will be forced to either ration by price – the default of the market economy which will hit those on low incomes the most, or ration by distribution similar to WW2 which will be fairer but very complicated to implement.