Liberal Democrats propose 4p cut in income tax

Radical tax plans that will take the basic rate of income tax to its lowest level since 1916 were unveiled today by the Liberal Democrats.

The move to cut the basic rate by four pence in the pound will reduce the basic rate of income tax to 16p, benefiting millions of people on low and middle incomes.

The plans are a development of those approved by the party conference last year and form part of the party’s proposals to lift the tax burden on low and middle income earners whilst making the rich and people with environmentally damaging lifestyles pay a fairer share.

The revised proposals are tax neutral and have been independently evaluated by the IFS.

The proposals launched in the document Reducing the Burden: Policies for tax reform include:

  • Reaffirming the commitment to abolishing Council Tax, replacing it with a tax based on ability to pay
  • Removing tax loop-holes exploited by the super-rich
  • Radically simplifying the tax code, removing over 500 pages of unnecessary regulations
  • Reforming stamp duty to reduce the amount of tax paid on properties worth less than £500,000
  • Reforming Inheritance Tax, with the aim of raising the starting threshold to £500,000

Commenting, Liberal Democrat Leader Ming Campbell said:

“Our new proposals will put fairness at the heart of the tax system.

“Low and middle income earners in this country shoulder too heavy a tax burden.

“By cutting the basic rate of national income tax by four pence in the pound the Liberal Democrats are proposing the lowest basic rate since 1916.

“By reforming stamp duty and inheritance tax we will ensure that people who were not originally intended to pay these taxes no longer do so.

“The unacceptable reality is that in Britain today the poorest pay a higher proportion of their income in tax than the super-rich.

“Under our proposals tax cuts for the majority will be paid for by the wealthy minority, as well as those with environmentally damaging lifestyles.

“Only the Liberal Democrats have produced a costed plan to create a tax system that is fair, simple and green. I challenge Gordon Brown and David Cameron to back up their rhetoric by endorsing our plans.”

Commenting further, Liberal Democrat Shadow Chancellor, Vince Cable MP said:

“This paper takes forward, in a more radical form, the proposals we passed at our conference last year. Those on low and middle incomes will benefit from a cut in the basic national rate, and from the scrapping of council tax.

“The national tax cuts will be paid for by abolishing the capital gains tax break, which allows the very rich to pay a lower tax rate than the person who cleans their office, as well as only providing tax relief for pensions at the standard rate; and raising taxes on polluters.

“Taken in conjunction with the abolition of council tax, these policies benefit the vast majority of families.”

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14 Responses to Liberal Democrats propose 4p cut in income tax

  1. Pingback: Liberal Democrat Voice » Lib Dems propose lowest rate of income tax since last Liberal government

  2. M Custance says:

    The “super-rich” or “wealthy minority” who will be taxed are apparently those earning £68,000 (no not per person, per household). This is just £8,000 more than average earnings for a couple in London. It would also imply a mortgage capacity of £204,000 – almost £40,000 less than the average price (according to findaproperty.com) of a one bed flat in Brixton. Many of us thought that Ming was going to take the Lib Dems into more sensible policy territory but we see now that we are to be disappointed. Or is it to do with the fact that the Lib Dems are run from Scotland and that their earnings figure is 50% higher than the average Scottish couple earns and would allow them to buy a very pleasant little cottage in Glasgow. Another case of Government by the Scots for the Scots?

  3. Tim Kent says:

    Good work Ming!

    These are good proposals for individuals and families who are working hard want to pay less tax and help do their bit for the environment.

  4. Bernie says:

    I read the first paragraph and felt kind of lukewarm to this idea. 4p in the pound is hardly worth the big headlines. But as I read further that lukewarmness started to become colder. Then it froze. I wonder at what point in our political history the word “fairness” came to mean the exact opposite of what it originally meant. This is a classic agent saboteur technique. Keep the word but change the meaning. 1984 and all that. So “fair” which used to mean “just” back when “just” meant something else again but which now means something closer to “If you have managed to earn more than I have then I am now entitled to take some of your money”.

    This proposal is about income tax and yet manages to suggest that it is the “rich” who are living environmentally dangerous lifestyles. So in one sentence we can blame the rich for environmental damage and take their money without their consent (otherwise known as stealing) and be perfectly justified in doing so.

    No Mr Campbell YOU and your ilk are the enemy. Not the rich. Not the SUV owners. Not the smokers. Not the immigrants. Not those who don’t agree with you.

  5. Andy Mayer says:

    Speaking from the perspective of being a liberal who prefers that to mean smaller government done better these seem to be broadly sensible proposals.

    The three big achievements are to find a way of scrapping Council tax without recourse to an income tax rise (which was the problem in 2005), raising the threshold on inheritance tax, and making stamp duty less onerous.

    On the payment side I’m can’t really see strong arguments against either scrapping taper relief or increases in green taxes. The most difficult area is removing tax relief on higher-rate pension contributions. I personally would prefer that we considered a sensible land tax rather than this suggestion, however it would be an unusual balanced tax package that pleased everyone with every item.

  6. Anthony says:

    Ignore the couple of rabid comments above; this is an excellent plan.

    Seems that the biggest losers are non-residents (your Russian oligarchs for example) who currently get to avoid paying any tax when they sell property here. No idea why successive Labour & Tory governments think it’s right that ordinary taxpayers should be subsidising them!

    I particularly like the stuff on simplifying the tax code. I find it pretty unfathomable in places (and I’m an accountants) – and I know for a fact that HM Revenue & Customs don’t understand vast tracts of it.

    Well done Ming!

  7. Another Anthony says:

    Bernie, “fairness” means not having a tax system where those earning the lowest amounts of money pay the greatest proportion of their income in tax.

    M Cunstance – if £60,000 is the “average” income per household in London – (1) wages in London are much higher than anywhere else in the country, so increasing taxes for households earning £68,000 pa, so that they pay a similar proportion of their income in tax to those earning much less, is not going to affect many people and is actually fair enough and (2) what kind of “average” are you talking about? What is the median salary per household in London? I bet it’s much lower than £60,000, but a much more likely figure as to what most people really earn.

  8. CRAIG says:

    I think that it is the right direction for the Lib Dems to move the tax burden from the low paid to those who could afford to pay more. Labour under Gordon Brown has acheived helping the low paid than when the previous Tory administration was in power, but he has now removed the lower level rate of 10p in the £ rate income tax and failed to address why low paid people would be worse off if they took certain jobs as they can not afford the level of council Tax. I have heard people on benefits say that if they took some jobs they would not benefit has it would not cover the Council Tax. I think that the Lib Dems are the only political party to have called for a Local income Tax. They will count on my vote at the General Election

  9. Andrew Duffield says:

    4p off the basic rate makes a great headline – and it might actually benefit the productive economy if it wasn’t for at least 3.5p being added stright back as Local Income Tax.

    At best then, this is a half-percent cut – certainly better than a shift the other way, which is what we were proposing previously, but nothing like as much as what we should be doing if we are serious about taxing “bads” instead of “goods”.

    Above all, this party must get its head round the fact that income tax is actually a cost to business and passed on to the consumer with ultimate and heavieat incidence on the poor. Any claim that income tax is redistributive and “fair” is entirely superficial – as 200 years of an ever widening wealth gap should have proved.

    The real frustration is that senior Lib Dems know this to be true, yet continue pandering to “Devon Pensioners” and their ilk because today’s votes are what counts and the next generation can go hang – or pick up the tab for everyone else at least. Why indulge in genuinely sustainable economics when tomorrow is another day?

    Still, 0.5p off income tax is a start I suppose.

  10. Edward Waite says:

    4p of the pound sounds pretty good…. but…I think a better way to give money back to the working masses (and I include myself in this) is to make the cost of commuting on public transport income tax deductible.

    Tthis would be (a) enviromentally positive – it would provide a valuable financial incentive for people to get out of their cars and use public transport.

    (b) It would assist the lower/middle paid because it is predominantly the lower
    paid who commute by public transport. (Although it is possibly the case that
    wealthier people commute further¡¡- although research could be carried out
    into this.)

    (c) It would release some of the pressure on the South/South East (and other
    parts of UK) by making it easier for people to live further out of London –
    hopefully meaning that people would then be able to afford their own homes
    (even if not in the centre.)

    (d) It would be a vote winner because instead of the enviroment always being
    an excuse to increase taxes – here it would be an excuse to effectively
    reduce taxes.

  11. Pingback: Liberal Democrat Voice » Tory tax priorities: cuts for the richest, please

  12. jodie says:

    And the lowest poll rankings since 1800, what a pointless bunch you are

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  14. Maxell Rodgers says:

    Why should those earning more pay more local tax? Those earning more usually use less local resources. If old people don’t like the council tax being based on the cost of their house – down size – move into something smaller. I tried hard at school and college, work hard and do not want children but see my wages going to subsidise those who are lazy, put no effort into their education or see breeding as a way of opting out of work.

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