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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9 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!