Liberal Democrats believe in a limited state and a market economy. We are naturally cautious about how much of the economy should be taken by the state. Our party started out strictly opposed to high taxes: ‘peace, retrenchment and reform’. But the largest share of 19th century central taxation went on the army and navy, and Liberals opposed imperial expansion and geopolitical strategy. At the local level Liberals taxed and spent, on the ‘municipal socialism’ of water, public health, gas, electricity and transport, against Tory opposition. From W. E. Forster’s Education Act onwards, Liberals committed government to spend on improving the opportunities and welfare of British citizens; and under Keynes the party also committed to investment in public infrastructure and the promotion of economic growth. We have even fought an election campaign, in 1997, on a commitment to raise income tax, against comments from Labour strategists to our manifesto team that ‘no-one will ever vote for a party that wants to raise taxes.’
Again in 2024, Labour campaigned cautiously on a manifesto that committed to holding down the three most important revenue-raising taxes, in spite of recognising the enormous backlog of public investment that had built up since 2008 and the challenges of our ageing society and rapid technological change. The two years since then have further exposed the neglect of our armed services in the face of rising foreign threats and an unstable world. The Conservative Party denies that there is a serious problem, and is still calling for tax cuts, suggesting that welfare spending that rose sharply when it was in government can be cut back enough to fund stronger defence at the same time. Burnham’s government thus faces some hard choices. Either it cuts back again on public investment and research and development, as well as squeezing welfare, or it raises taxes to fund both stronger defence and rebuilding our economy.
How should we react, as a responsible opposition party? The easiest line would be to attack Labour for betraying their manifesto, without saying what we would recommend instead. The Tories have adopted a radically economic liberal line, assuming that the market will sort most things out and that cutting public spending – after 35 years of privatization and austerity (yes, the Blair Government did not entirely break with the Thatcherite model) – will leave more space for entrepreneurs to flourish. But the free market model is now questioned even in the USA, while the hybrid Chinese model of market and state capitalism has unbalanced the global economy, ‘Geoeconomics’ – the combination of political, industrial and economic objectives in state strategies, coherently in China and incoherently in the USA – has overturned many of the assumptions of economic globalization, strengthening the case for participation within a regional confederation, the EU, capable of bargaining with both.
Accepting the case for higher taxes now does not mean rolling over into uncritical support for the government. It recognises that the country has to spend more on defence – not on more aircraft carriers or F-35 interceptors, but learning the lessons of the Ukraine war, sharing security with our neighbours and investing in homeland defence. We should be calling for a major programme of tax reform, to sort out the horrifying complexity of our tax code and the loopholes it contains. We should support welfare reform, under careful parliamentary scrutiny, recognising that housing allowances can only be brought down if more social housing is built and that paths to training and employment are vital elements in reducing the number of young people not in employment, education or training.
The Conservatives make great play with waste and fraud in welfare. They don’t look at waste and fraud from outsourcing public services, in spite of well-documented evidence of private equity investing in social care and grossly overcharging, the scandal of Ministry of Defence Housing, etc.. A Burnham government will prefer to bring as much as possible back under government control. We should support greater accountability and autonomy at local government level wherever possible, and reform of taxation to enable local authorities to afford to provide services. But we should also campaign for third sector provision of public services, as others have argued on LibDem Voice: non-profits managing care homes, cooperatives and charities supporting local welfare.
Political leadership is about changing the agenda rather than following opinion polls. Starmer failed to provide that leadership, not daring to explain that economic recovery requires higher public investment, that one of the biggest factors in our rising welfare and health bills is our increasing proportion of elderly people, and above all that national defence and national resilience need transformation to meet foreign threats and natural disasters. We don’t yet know how far Burnham will attempt to change public assumptions. But we as a party must stand up to the Telegraph, the Mail and GB News, and set out the hard choices required to revive our economy and strengthen our security.
* 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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“ …the hard choices required to revive our economy and strengthen our security.”
If by hard choices you mean increasing taxes, I agree that that may be necessary to strengthen our defences but I’m not convinced that increasing taxes is necessary to achieve a strengthened economy, and may actually work against that objective.
Like William, I am part of our “increasing proportion of elderly people”, but I am willing to play my part in agreeing with him about “the case for higher taxes”.
Good, and refreshing, to hear that a bit of sixties Liberal radicalism is still at the heart of the party.
By committing to not raising the 3 main taxes but then raising taxes by over £70bn on stupid taxes Labour have done a lot of unnecessary damage to the UK economy. Rather than raising taxes, the welfare bill has to be reduced. Firstly by dumping the triple lock.
Our motto should be “not just higher taxes but fairer taxes”. Individuals should be taxed exactly the same on their income whether that comes from earned income, unearned income, or capital gains. Wealth should be taxed the same whether it is held as personal assets or in trusts. No distinction should be made between what is held in this country or abroad; like America we should tax our residents on their world-wide income, subject only to reliefs under double-taxation treaties. Anyone who chooses to live abroad for tax purposes should be limited to no more than 30 days a year in this country before they become resident again. These are all changes that we could make easily and which would be popular with a large majority of the population.
@ Russell “First, by dumping the triple lock”.
Are you sure you’ve posted this on the correct website, Russell ? In the meantime I sincerely hope you never get old, infirm, frail or in need of support.
Jana:
Investing in strong research and development in key sectors (which is where China is soaring ahead), rebuilding training, apprenticeships and early education all count as promoting a stronger economy.
It’s worth looking at two recent Policy Exchange publications, on tax reform and how to cut public spending, to get a sense of where the ‘hard choices’ lie. I agree with some of their tax reform proposals; but their programme for a radical reduction in public spending involves squeezing pensioners hard, moving the NHS towards a social insurance scheme, and cutting the civil service by Trumpian-sized numbers, amongst other measures.
@Russell. The UK already has almost the worst state pensions in Europe even with the triple lock. We pay out millions in supplementary pensions, housing benefits and other benefits to pensioners because many don’t have enough to live on. You propose making that worse by stopping uprating pensions.
Unless and until pensioners have decent pensions they can live on talk of scrapping the triple lock will serve only to alienate pensioners and won’t solve the costs of welfare.
What is needed is an acceptance that working people will have to pay more during their working lives in order to get a reasonable and fair pension when they retire, not bashing existing pensioners because they want improvements to pensions they already paid for but which are inadequate.
By ruling out rises in NI and income tax, Labour have ruled out that possibility. Are LibDems going to continue to do nothing about pensions and lie to the electorate about the need to pay more?
The average pensioner, not receiving the (moderately) improved Steve Webb. state pension gets around £240 a week to live on, around £34 a day. Those on the improved state pension get around £1000 per year more and now some of that is taxed. I’d be very surprised if you, Russell, have so little to live on, yet you want to stop the modest improvements the triple lock is making and has made.
Think again
How about joining in fewer discretionary wars. Stop the MOD wasting money. Cancel Ajax and the planned F35a purchase. Mothball or use for spares one of the aircraft carriers. Revisit the “hybrid” navy idea. The “drones” are uncrewed warships 90m long. Not attritable like shaheds. Buy off the shelf IFVS rather than tanks…
As usual another erudite article from William. Whilst I support the imposition of some taxes on excessive wealth, I would like to see the party focus primarily on wealth generation rather than redistribution, both for practical and political reasons. The leader has proposed a Growth and Defence Partnership with the EU which as part of the road to joining the EU could generate up to an extra £90bn revenue for the Treasury to spend on the NHS, social care, education, defence etc.
Ever more scare mongering about ‘DEFENCE’ is putting basic living standards at risk; who exactly is threatening us militarily? Russia is unable to win a war against Ukraine, China won’t be invading us any time soon, etc. As far as I see it the USA is the biggest threat to NATO.
I’m old enough to remember Kennedy telling the American people that Russia’s military capability was superior to theirs’s and the surge in US military spending that followed (most of it wasted, along with a generation of young men, in the Vietnam war against a far weaker opponent)
As the Vietnam war was grinding to its end, up popped the MiG-25 “Foxbat” hysteria and the military spending skyrocketed again..
The Tories want to spend even more on defence and to use Badenoch’s words “To cut welfare and use the money fund defence”.. However, when it comes to her plan, it is rather short on exactly what welfare should be cut; the idea that ‘those who can work should work’ is dependent on who decides what fit for work means…She is keen to point out that in the last few years ‘welfare has risen by £20 billion’ but shy of mentioning that over half that rise is due to increases in pensions..
If there must be a choice between ‘defence’ and ‘welfare’ my vote goes to ‘welfare’..
@russel @david I thought the triple lock was unfair but it has brought state pensions up to the levels in most devleoped countries AND remember that younger people stuck in the rental sector will really need a decent pension when they get older if housing inequalities don’t improve. (but let’s hope they do) Anyway I think this is a brilliant article and if the LibDem leadership does not support modest rises in taxation of income (which will bring in much needed revenue quickly) I will be dissappointed.
No argument on reform. My worry is the word “higher”. It tends to lose elections. The real scandal is not the rates, it is a tax code so complex the wealthy can tiptoe round it while the rest of us can not. Shouldn’t “fairer and simpler” come before “higher”?
I agree with Mick Taylor. Many wealthier posters here forget about struggling pensioners. The rising cost of living and energy bills hit them hard. I support a fair increase in taxation. I also believe the personal allowance should be raised. Shop prices are at record highs. Raising this allowance helps low-income earners keep more of their money. Furthermore, our party should back a mixed economy over a purely free-market one. I support more public ownership, provided it includes the strict accountability, scrutiny and transparency that today’s privatised utilities lack.
First, diagnose the problem correctly, the problem is not that taxes are too high or two low but that they are utterly unfair. Inequality is killing growth. People can barely get through a month, they have little to invest in themselves and their communities. The mega rich just buy up all the assets. Andy Burnham doesn’t want to even talk about wealth tax in case it creates division in a society for which food banks are normalised. Commentators love to spout we can’t afford the triple lock – when we can if that’s what you want. You might even notice that the problem of corrupt billionaires whether in Russia or the USA is not helping. Rather than waste billons more on “defence” how about diplomacy, trade, soft power and justice?
Mrs Thatcher didn’t just sell council houses, she virtually gave them away, one of the biggest acts of redistribution in UK history. Turns out people really do need a handout, not a hand up. I can get by on a tax code written on a few sides side of A4. Tax reliefs cost the UK government an estimated £218 billion annually, surely some scope for them to pay for tax cuts for the majority.
I strongly recommend people read this piece from Dan Neidle(*). In brief:
1) there’s strong public support for increasing taxes that other people pay;
2) there’s very little support for raising taxes people pay themselves
3) mostly recent tax increases have been on “other people” – windfall taxes , closing loopholes, foreigners, increased stamp duty on expensive houses etc
4) Those countries that do raise more tax overall tax do it by taxing average and the lowest paid more than we do
5) UK tax on the lowest paid workers is significantly lower than in other countries (I suspect down to the £10k rate in income tax we introduced in 2010-15 – it pays to be in power)
6) taxing businesses more damages the economy if you push them too far (see the NI increases for a recent example)
7) taxing the rich raises very little in comparison with what is required and has already been done pretty effectively
Sorry – here’s the Dan Neidle link: https://taxpolicy.org.uk/2026/06/05/taxing-other-people-uk/
More important than William’s erudition is his wisdom! It woudn’t do us any harm to look at the language used in other European countries when debating tax levels. The Conservative Party, backed by its media allies, loves to talk about the politics of envy and redistribution (which is but a part of the story) rather than investment in people, social justice and healthy public services. We need sober and careful discussion on taxation and not assume that this will inevitably frighten the horses!
The argument about Russia’s not being successful in Ukraine is a bit of a red herring. Ukraine has survived (to date) thanks in part to significant financial support from the EU, the UK and the US (total about £22bn from the UK and $400 bn from the 3 together). Had that support not been provided I suspect the war would have been over long ago; and as we know the US contribution to Europe’s defence is uncertain.
More generally attached (*) is scary. It is a Government assessment of the implications of Biodiversity Collapse and Climate Change for National Security. It states:
“Without significant increases in UK food system and supply chain resilience, it is unlikely the UK would be able to maintain
food security if ecosystem collapse drives geopolitical competition for food”
It seems to me that increased defence spending, and especially a navy, is required to assist in supply chain resilience by securing shipping lanes, especially in a world where the pax American cannot be relied on. In addition, much spending is required to help us get to net zero and ensure resilience against climate change.
(*)https://assets.publishing.service.gov.uk/media/696e0eae719d837d69afc7de/National_security_assessment_-_global_biodiversity_loss__ecosystem_collapse_and_national_security.pdf
“The real scandal is not the rates, it is a tax code so complex the wealthy can tiptoe round it while the rest of us can not. ”
Indeed
“Shouldn’t “fairer and simpler” come before “higher”?”
Yes
Nonconformistradical. The whole thrust of our complex and bewildering tax code IS to protect the rich. The Tories don’t want to change it. Labour are in hock to many wealthy donors. The right wing press exist to promote the welfare of the very rich by trying to persuade people that higher taxes for the rich will affect them. The press will shriek very loudly if any attempt is made to make the rich pay even the taxes they now should, never mind increases.
Sadly, I am doubtful if our party, representing as it does so many relatively well off areas, would do any better if by some miracle we got to power. Taking on vested interests is always hard, especially in the UK with its biased press. This would be even harder if the next government is a coalition. Of course, we did do so in the past, but our recent turn in government did not really tackle vested interest and in any event, did us no favours.
You do realise that eventually the triple lock will cost more than 100%of uk gdp
@ William,
You’re making the “case for higher taxes”. Fair enough.
Can I ask how which taxes and how much higher you’d like each one to be?
@ Tristan,
“Those countries that do raise more tax overall tax do it by taxing average and the lowest paid more than we do”
You’re probably right. The argument is that the very poor don’t have any significant taxable income whereas the wealthy have the ability to shield their wealth and income from the tax collectors.
The wealthy are also very adept in getting this kind of argument accepted:
“taxing the rich raises very little in comparison with what is required”
Isn’t this because they do have the ability to shield their wealth and income? Should we just accept defeat on this?
For the record, I think that it’s people like me who should accept that they have to be taxed more: that’s better-off, but not enormously-wealthy, retirees with private pensions as well as state support. Extending NICs to retirees, or merging NI into income tax, would have this effect. Tax reform should make it easier to limit tax avoidance by the wealthy, and long-overdue reform of council tax would provide the one wealth tax element that’s relatively easy to collect. Raise the minimum level of income tax again, as we did after 2010, but raise the rate of income tax thereafter.
The defences of the triple lock are just bizarre.
@Mick Taylor “You propose making that worse by stopping uprating pensions.”
That is not what was said.
The choice is not to either have the triple lock or freeze pensions for ever. To suggest so is beyond ridiculous. Pre 1979 pensions rose in line with average wages, from 79-97 they rose by RPI then until 2010 they rose by arbitrary decision.
A smoothed average wage measure would be fair and even better than the pre-1979 position.
You can’t have a system that requires the pension to always at least match wage growth and often out perform it. Eventually that exceeds 100% of GDP.
It was a bad policy from the start, there should have been a target of what the correct level of pension was and a target to reach it not an eternal rachet.
@ Mick Taylor
“The whole thrust of our complex and bewildering tax code IS to protect the rich. ”
But it is not. We actually tax high earners more as a proportion than other countries.
The current system is an evolution of trying to tax more while saying we are not. With extra mess thrown in by governments trying to “pick winners” using tax, having seen that approach using subsidy fall out of fashion in the past. So many of the insane schemes are actually ideas that were intended by the treasury to encourage one industry or other. That approach tends to benefit the parge established companies not the new fast growing and agile.
The explosion of the tax code happened under Gordon Brown, and was criticised at the time as a misuse of the tax system for government policy.
If you see shady men in dark rooms doing deals you will not understand the problem, when it was well meaning civil servants concocting over engineered ideas to generate a new short term headline for the government of the day. If the Tories were the problem, then the 1997 tax system wouldn’t have been so much simpler than what followed.
The case for higher taxes is blatantly clear, unless you are a politician seeking votes. Everything in Britain – the NHS, the courts, the prisons, defence, and pretty much everything else – is wrecked and grossly underfunded after 14 years of the Tory “Low Tax Party”. The remedy is obvious. Unless you want to take the advice mentioned in the OP that ‘no-one will ever vote for a party that wants to raise taxes.’
Yes, it’s a dilemma. But, what’s the point of being politically active if you don’t confront it and find a solution? If you don’t want to try, you’d be better off leaving politics and going pottering in the garden.
Sadly, most of the posters on this thread have dealt with the dilemma by seeking an avoidance tactic. To demand that “fairer and simpler” should come before “higher” is to dodge the issue. To talk about wasteful defence spending, even if you identify real waste, is to dodge the issue.
Is the Lib Dem consensus to dodge the issue, and leave it to the Greens to face up to reality?
“Fairer and Simpler” and raising more revenue generally go together anyway. Most of the weirdest bits of the tax system result in less revenue so getting rid of them both simplifies the system and raises revenue. Merging NI and capital gains into income tax would be a major win on both counts.
I do always appreciate it when a member of the House of Lords who sits in the helpful category of being exempt from tax from their lords allowance feels the need to tell me I need to pay more tax…
There are a number of ways to reduce government spending that the article neglects to even seriously consider:
1. Triple lock reform
2. Reforming welfare spending (including a cap on DWP spending)
4. Reducing clinical negligence claims through more effective NHS reform
There are also ways to increase economic growth
1. Closer relationship with the EU
2. Embracing free trade
3. NI employer reform
4. Meaningful pension choice (puts more into pensions whilst also freeing up money for individuals to spend)
Can we please move away from the default option of tax rises, it lacks inventiveness and hurts the poorest in society.
Not higher taxes but different taxes. We said in our 2015 manifesto we’d look at how (not whether) to introduce a Land Value Tax within a single Parliament.
Conventional taxes are mainly a drag on the economy. We definitely don’t want more taken from earned income or company profits or transactions. We want more of all those. Its crazy to tax them.
The only taxes which aren’t associated with “deadweight loss” (estimated between 8% and 30% of tax take) are taxes on unearned wealth accumulation from things that are not “created” at all: land values are the main form and the easiest to tax. They leave the active economy unscathed and are transformative.
While in favour of some redistribution to create a fairer society, the only long term solution to our challenges is increased economic growth. I favour green growth so we become the leading european nation for renewable energy though AI and IT are other possibilities. I can’t see why the new government isn’t going all out for growth so we don’t have to make these difficult decisions. We should make green growth our economic priority.
@Laurence Cox. I’m one of 5M+ British Citizens who live abroad. You’ve made the same assumption that Ed Davey did back in March ..that a chunk of British citizens living abroad are doing so for tax purposes. That simply isn’t the case. Look where the majority of us are … Australia, North America, Western Europe..not tax havens. Many are retirees, many are working ( I am the former and was the latter). And I would suspect that even a good number of those in say Dubai are there for work. Now there may be an argument for taxing worldwide income, although given the tax treaties and where the majority of overseas and the various tax treaties I’m not sure how much it would raise … but let’s not pin that on some populist dislike of things foreign.