Economic and Fiscal Policy

The Economic Challenges
Economic Management

The Tax Credit System
Taxes and Tax Rates
Inheritance Tax and Universal Inheritance
Other Measures

The Economic Challenges

The growth of the internet, e-commerce and other advances in technology are already changing working practices and employment patterns. At the same time the rapid growth of economies in the developing world is challenging the previous dominence of the West and rendering whole industries uncompetitive.

These are global challenges, beyond the power of individual nation states, or even of regional groupings such as the EU, to control. The need for a democratically accountable world authority has never been greater. Unless the new technology can be made to serve the interests of people there is a real danger that changes will be determined by what is technologically possible, rather than by what is desirable.

“Information is power” and the changes now taking place in the world are capable of being used for authoritarian purposes of for the liberation of individuals and communities. As Liberals we believe that the economy should serve the interests of the people.

Economic Management

The UK government, whichever party is in power, now has only marginal influence over interest rates and exchange rates which are chiefly determined by global market forces. This puts pressure on the remaining areas of the UK economy over which the government can still exercise control. Liberals deplore the influence of electoral considerations on the management of the economy with successive governments building up reserves so that they can attempt to bribe the electorate with tax cuts or increasing public spending just before an election. We believe that the introduction of proportional representation would bring greater stability.

We remain committed to a genuine free enterprise economy with stricter controls over monopoly power, similar to the US anti-trust laws, and greater employee participation, including co-ownership.

We believe that the devolution of power to the nations and regions of the UK will help to redress the imbalance of economic activity between South-East England and the rest of the UK.

We also believe that high standards of education and health should be available without charge and are concerned at the continuing erosion of this principle.


Liberal economic policy has the following objectives:

  1. To convert to sources of energy and industrial processes which are sustainable and non-polluting;
  2. To support world development and oppose protectionism, accepting that the privileged position of the Western World cannot long continue;
  3. To distribute wealth fairly, waging war on poverty and ensuring a minimum standard of living for all, but also rewarding innovation, initiative, commitment and good work;
  4. To encourage cooperative ventures and organization on a human scale;
  5. To foster the development of local economies.

With regard to these objectives we would identify significant exemplars with target achievement dates. These would include such matters as the restoration of the ozone layer and the elimination of TB (both nationally and globally). Only in this way can appropriate strategies be identified and costed in view of their probable short term costs against long term savings.

For Liberals, economic policy will always have to serve the achievement of the freedom of the individual to enjoy a healthy environment.


We believe that all pensioners should receive a basic pension sufficient to provide an adequate standard of living.

Liberals believe that the private sector can enhance, but can never replace, a basic state pension which we have resolved must be set to at least what the Family Budget Unit describes as “Low Cost but Acceptable (LCA)” standard of living, which is, using 2000 data, at least £90 a week for a single pensioner and £135 a week for a couple. We also believe that additional non-means tested benefits will need to be paid to take account of housing costs, disability and additional needs of older pensioners.

We also believe that individuals should be able to save for additional benefits in a national scheme where the individual pension is related to the contributions and investment returns. Because these benefits would be financed directly and genuinely from contributions, those who have saved for their retirement would no longer be penalised because of those savings.

To ensure that these monies are no longer “raided” by government a separate National Pension and Investment Trust should be established. Such a trust would allow the expectation of flexible retirement ages and would cater for the substantial number of employees who regularly change employment or are in self-employed or part-time work.

The Tax Credit System

The Liberal Party has long advocated a change to the Tax Credit System. This system reduces administration and eliminates the “poverty trap” whereby people on low incomes can be worse off if they earn more due to losing means tested benefits. By combining the tax and benefits system it makes both easier to understand and provides a mechanism for a minimum wage, which the Liberal Party supports.

The main features of the Tax Credit System are that:

  1. everyone is entitled to fixed credits according to their needs (a personal credit, housing credit, and credits for the unemployed, students, the disabled etc.), these credits are not means tested;
  2. all income is taxed starting at a very low rate (perhaps 10%);
  3. if tax exceeds credits then the individual pays the state, if credits exceed tax then the state pays the individual.

Taxes and Tax Rates

The Liberal Party fully supports the principle of progressive taxation whereby those on higher incomes would pay a larger proportion of their income in tax. We believe that National Insurance contributions now function as a form of secondary income tax and distort the distribution of the tax burden.

For some time The Liberal Party advocated a system of tax credits in order to assist people off benefits and into work. The experience of the past few years has highlighted the practical difficulties with such a policy. The Liberal Party recognises that the various tax credit schemes have resulted in horrendous levels of over and under payments. Liberals also recognise that such systems of taxation have raised overall levels of taxation as a result of increased administration.

Liberals also recognise that such systems have acted as a disincentive for families working additional hour sand/or undertaking training and/or additional responsibilities.

In view of these difficulties The Liberal Party calls for a tax system which is both simple and reduces the burden of taxation.

Liberals therefore advocated a tax system where all earnings under £10,000 are tax free and thus the need for compensatory tax credits and other forms of benefit is reduced, and that this should be balanced by increasing the rate of taxation to 50% for earnings over £100,000 of taxable income.

Inheritance Tax and Universal Inheritance

Liberals call for the wider spread of private ownership of wealth, as demanded by the constitution of the Liberal Party, to give greater equality of opportunity for all and to help make poverty history, both in the UK and internationally.

The Liberal Party believes that the current scheme of Baby Bonds is basically a Savings Incentives Scheme for the wealthy and middle classes and that they are deeply flawed from the point of view of ‘Opportunity for All’ by not being part of a reform of the exemption ridden 40 per cent Estate Duty type Inheritance Tax.

Liberals believe that the only way to ensure wealth ownership for al UK -born citizens is to give it to them as a British Universal Inheritance at a financially responsible age and then to claw it back from those who do not need it, and to finance it by a progressive tax, starting at a marginal 10 per cent instead of the present 40 per cent, and remaining at 10 per cent for most beneficiaries, on cumulative lifetime receipt of the payment itself and of all other capital gifts and inheritance.

The Liberal Party, therefore, noting that the average wealth of every adult and child in the UK at the end of 2002, according to the Office of National Statistics, was £85,000, calls for a £10,000 British Universal Inheritance to be paid to all UK – born citizens at the age of 25, to be clawed back by a marginal 10 per cent tax from a further £90,000 of capital gifts and inheritance received from other sources, thereby giving a net personal tax free lifetime allowance, above which progressive inheritance tax rates above 10 percent would start to apply.

Capitalist democracies already have universal suffrage – votes for all. Universal Inheritance – capital for all- is also required, to spread more widely the private ownership of wealth in each new generation.

Other Measures

VAT, like most taxes on spending, tends to be regressive. The Liberal Party therefore finds merit in a higher rate of VAT for luxury items and extension of the zero rate.

The Liberal Party believes that the community should enjoy the benefits of publicly-created land values and, to ensure this, supports the Taxation of Land Values.

Liberals also believe that those who have a conscientious objection to the use of their taxes for military purposes should have the right to register their objection and to divert that portion of their taxes into a non-military security fund.

We believe that tax incentives have a role to play in the promotion of sound environmental policies by businesses. We suggest that tax incentives could be offered to companies which use recycled materials and special duties added to goods produced in ways which are environmentally damaging.

Liberal Party proposals include:

  1. the combining of NI and income tax;
  2. income tax to be made more simpler, with tax free earnings up to £10,000 and a top rate of 50% on earnings over £100,000;
  3. changes to the tax structure to remove many of the distinctions between capital gains and income to ensure that tax is not avoided by arbitrary changes in the method of payment;
  4. greater resources dedicated to tracing tax evasion;
  5. more relief against corporation tax in respect of capital expenditure;
  6. higher rates of capital gains tax for short term (“speculative”) gains. In particular, a tax would be introduced on the profit from short-term trading of large sums of currency on the money markets;
  7. the introduction of Land Taxation to recoup for the community those values it creates;
  8. a higher rate of VAT on luxury items;
  9. the extension of the VAT zero rate to cover adult as well as children’s clothing and a return to zero VAT on fuel;
  10. substantial premiums over and above the rate of inflation on vehicle fuels.