Liberal Democrat propose 4p cut in Income Tax

1.48.23pm UTC (GMT +0000) Thu 12th Jul 2007

Radical tax plans that will take the basic rate of income tax to its lowest level since 1916 were unveiled today [Thursday] 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 (Institute of Fiscal Studies).

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, Menzies 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."

Notes:

1. The tax paper Reducing the Burden: Policies for tax reform can be read on the Liberal Democrats main website at www.libdems.org.uk. This currently has the status of a policy proposal and will become Liberal Democrat policy if it is passed by autumn conference. It represents an updating and development of Policy paper 75: Fairer, Simpler, Greener, approved by the 2006 autumn party conference.

2. After 10 years of the current Labour Government the tax system remains unfair, with the bottom 20% of households paying a higher proportion of their income in taxes than the top 20% (36.4% v. 35.5%: Source: http://www.statistics.gov.uk/downloads/theme_social/Taxes_Benefits_2005-2006/Taxes_Benefits_2005_06.pdf page 8).

3. Wealth inequality has been worse under Tony Blair and Gordon Brown than under Margaret Thatcher. (The Gini coefficient, a statistical measure of inequality, averaged 65 under Thatcher and 69 under Tony Blair & Gordon Brown). The Government now will not publish wealth inequality statistics for 2004. The latest year that statistics are available is 2003. The Government is no longer publishing data on wealth inequality.

4. Green taxes have fallen to their lowest level since Mrs Thatcher was Prime Minister, they have fallen from 3.6 per cent of GDP in 2000 to just 2.9 per cent of GDP today.

5. The tax system has become much more complex under Labour, with the tax code doubling in length from 4,555 pages in 1997 to 9,841 pages in 2006 (Source: Tolley's Tax Guide).

6. On 19th June the Liberal Democrats launched a set of proposals aimed to make the rich pay their fair share of taxes. Copies of the paper are available.