Soak the rich and save the NHS - but the Lib Dem manifesto won't avoid austerity in public services
Given that the party has ruled out increases to income tax, national insurance and VAT then the chances are that further austerity awaits, as ITV News Economics Editor Joel Hills explains
The Liberal Democrats promise a “fair deal” for the United Kingdom which sounds reasonable, if not terribly exciting.
The ambition is bold.
“Things in our country are broken,” the manifesto declares. The good news is the Lib Dems plan to fix things, everything: the economy, the National Health Service, the climate and the housing market.
One way in which the Lib Dems say they will do this is with a fairly big increase in both taxes and day-to-day spending - bigger than Labour looks set to propose in its manifesto.
Spending would rise by £26.8 billion a year by the 2028/29. Health and social care gets the lion's share of the extra money.
£8.3 billion would deliver 8,000 more GPs, guaranteed access to an NHS dentist and improved cancer research and treatment.
Boosting the Carer’s Allowance by £20 a week will cost £1.4 billion.
There’s also an eye-catching increase to working age benefits.
Most of the extra £4 billion a year would go on scrapping the two-child limit on benefits payments to families. The benefits cap and the bedroom tax would also be ditched.
The Archbishop of Canterbury has made the compassionate case for ending the “cruel” two-child limit and if you want to reduce child poverty, then this would be a pretty targeted way of doing it, supporting poorer families with three or more children.
Like the Tories, the Lib Dems want to raise defence spending to 2.5% of GDP, reversing cuts to the size of the army.
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One of the biggest spending increases is to overseas aid.
But a lot of the money the Lib Dems want to spend is being targeted at things that everyone likes to talk about, like the NHS and schools.
What’s completely unclear is what the Lib Dems’ plans would mean for the public services which people talk about less, like local authorities, the courts and prisons.
The Institute for Fiscal Studies (IFS), The Resolution Foundation and the National Institute for Economic and Social Research (NIESR) have been screaming from the rooftops about the implausibility of the existing spending plans beyond April next year.
They say that if the next government rules out extra borrowing (and the Lib Dems have) then it will have to either raise taxes or cut “unprotected” areas of public services by between £20-30 billion a year.
That’s a big hole and the Lib Dem manifesto doesn’t fill it.
Arguably, it makes the hole bigger given the commitments the Lib Dems have made on defence and overseas aid.
Given that the party has ruled out increases to income tax, national insurance and VAT then the chances are that further austerity awaits.
Although, the party will keep the current thresholds of income tax and national insurance frozen until 2028 - a significant tax rise.
In theory, the Lib Dem manifesto is balanced. Extra spending is matched by extra revenue from tax.
In practice, the spending promises are far more certain than tax proposals the manifesto sets out.
The Lib Dems hope to raise an extra £26.8 billion a year by 2028/29, mostly from the very rich and larger companies.
The Bank Levy would be being increased. Oil, gas, water and tobacco companies would all pay higher taxes on their profits.
Tech companies would be charged a Digital Services Tax.
There would be a super tax on private jets, higher rates of Air Passenger Duty for anyone who flies more than three times a year and Capital Gains Tax reformed so that the “Top 0.1%” pay a lot more.
But the Lib Dems may not be able to raise what they hope to. The super-rich are more mobile and can afford clever tax advisors.
The Tories have already pushed up taxes at the very top and get an increasing share of tax revenues from high earners.
The idea of hitting unpopular companies with higher taxes will be popular move but real people are likely to end up paying them.
Banks could respond to higher taxes either by charging more for their services or cutting their costs. At the margins, the unintended consequences may be that savers get a little less interest and borrowers pay a little more for a mortgage.
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The Lib Dems’ biggest revenue raiser (£7.2 billion) comes from tackling tax avoidance and evasion. The Tories and Labour are similarly ambitious.
HMRC says it only collected 95% of the tax it believes it was owed last year so this is a worthy objective but past crackdowns tell us it’s impossible to predict with any certainty what you’ll get.
It’s also worth noting that quite a lot of tax avoidance comes from “normal” people doing things like getting work done at home and paying in cash.
A crackdown on VAT avoidance could raise money but it wouldn’t be the richest who foot the bill.
The Lib Dems' plan to raise investment spending by £20 billion in four years' time could also be hard to deliver.
The money would enable much-needed repairs to schools and hospital buildings and help increase the supply of social housing but it’s not clear that the pledge is compatible with the promise to get national debt falling as a share of GDP by the end of the parliament.
In summary, the Lib Dems’ manifesto offering is substantial.
It offers choice, something a bit different to what Labour and the Tories are expected to serve up later this week.
On tax, the Lib Dems may actually end up being bolder than Labour but there are also questions about whether the tax plans are deliverable.
The manifesto is big on plans to fund additional public services but, crucially, doesn’t tell us how a Lib Dem government would pay for the things the government already does.
A Lib Dem government could get lucky on economic growth but banking on economic growth isn’t really a strategy and we don’t really know how the party would respond if that growth doesn’t materialise.
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