Fairer, Simpler, Greener: tax reform policy

Speech by The Rt Hon Malcolm Bruce MP delivered to Liberal Democrat Conference, Brighton on Tue 19th Sep 2006

I was the Treasury Spokesman for this party who introduced the 50 pence rate of tax. Indeed two weeks after Paddy appointed me to the job a policy working party of which I knew nothing published proposals to increase the 40p rate to 60p.

This was at a time when Labour was moving towards claiming they would not change the rate of income tax and would stick to Tory spending plans.

I recognised that Liberal Democrats could stake out a distinctive position if we were prepared to increase taxes in a targeted and transparent way. This would enable us credibly to commit to the extra spending needed to turn round our under funded public services. I also set out our case for introducing green taxes and using the revenue to ease the tax burden on the poor.

Our costed programme included the extra penny on income tax to fund education, earmarked tax increases on tobacco to fund health and a 50p tax rate on earnings over £100,000.

I argued from the outset that this should be used to reduce the tax burden in lower income earners. It was a straight transfer from the highest earners to those near the bottom of the income scale.

Subsequently the revenue from this tax was diverted to spending and the help to lower tax payers was deferred - justifiably given the priority for funding health and education.

I sent in a submission to the latest tax commission arguing the case for the retention of the 50p rate provided it was dedicated exclusively to reducing the tax burden at the bottom.

I have no idea whether my submission was discussed but I was surprised and delighted when I saw the outcome was a far more radical redistribution than I had thought achievable and one that went much further than the 50 p switch could achieve.

Let's be clear there are real offsets to be taken into account. Phasing out the capital gains tax tapers, which we opposed from the outset, delivers substantial revenue to redistribute to the poor. Restricting pension contribution relief to the standard rate of tax, likewise, is a progressive transfer from upper income groups to the poor.

Gordon Brown has been the most meddling Chancellor ever. I have long argued that when he goes we will need a reforming Chancellor to simplify the tax system and make it transparent and effective.

Looking around I can see that this will have to be a Liberal Democrat Chancellor and this tax paper gives a credible framework for delivering that reform.

To those who want to hang onto the totem of a 50p rate as a sort of radical virility symbol I say this. Just as the penny on income tax served us well but has been superseded so the 50p rate was right for its time.

I do not believe those from the political centre left we are winning need such a totem to stay with us come over to us. Those on the centre right may, by contrast, misunderstand our position as a progressive party offering transparency and fairness across the spectrum.

If the real objective is to spend more than the other parties, then I frankly believe that suggesting to the users of public services that these can be delivered in a pain free way simply by taxing further the rich is disingenuous.

If we believe that the tax envelope should be expanded to deliver our political promise then we should say so and engage all tax payers as we did with our penny for education.

When I led for the party on Treasury matters I was conscious of the fact that we needed a balance and coherent package that would stand up to scrutiny. I believe that stance stood us in good stead in the 1997 election when I debated with Ken Clarke and Gordon Brown.

I believe that was why Ken Clarke was able to say at this time that the Liberal Democrats had acquired a coherent and credible economic policy.

This tax paper builds on this and brings it up to date. It is a balanced package that should be passed without amendment to maintain that hard won reputation for economic coherence.

ENDS

NB: Malcolm Bruce was speaking in support of the motion on tax reform: F28 Fairer, Simpler, Greener (Tax reform policy paper). For further information see: http://www.libdems.org.uk/conference/agendalist.html?day=2006-09-19&navPage=conferenceagenda.html