Kennedy orders tax plan overhaul

The Lib Dems are planning a comprehensive policy review on tax

The Lib Dems are to undertake a root and branch rethink of tax policies including looking again at their 50p tax rate for incomes over £100,000.

The party's Treasury spokesman Vince Cable has indicated they may also consider proposals for flat-rate tax.

An ex-civil servant has been appointed to head up the party's tax commission.

Charles Kennedy said: "Tax should be fair based on ability to pay, it should be straightforward and open so people see how their money is spent."

In a speech to the Lib Dem business forum he added: "Taxation should frame a competitive business environment and it must encourage sustainability, with economic instruments used to deliver public policy objectives."

Criticism

Lib Dem local government spokesman Sarah Teather said it was "inconceivable" the party would drop its plan to replace the council tax with a local income tax.

But there has been criticism of the policy in some parts of the Parliamentary party - Simon Hughes branded the plans flawed.

Mr Kennedy said: "In order to challenge for power at the next election the Liberal Democrats must demonstrate over this Parliament that the economy will be safe in our hands.

"To maintain that credibility, the carefully costed plans we laid out at the election will necessarily be updated, taking account of the direction of the economy and the requirements of society."

Treasury spokesman Vince Cable meanwhile sought to clarify how his party would approach the flat rate tax idea.

Progressive system?

"What people on the right tend to mean is replacing income tax with a flat-rate tax - we wouldn't want to go down that road," he said.

"Perhaps a few taxes on capital combined with a high threshold could produce a progressive system."

Michael Williams has been asked to head the Lib Dem tax commission.

Mr Kennedy said: "Michael is a former Treasury civil servant with over 30 years experience working at the heart UK economic policy.

"I am sure that under the chairmanship of Michael Williams, the tax commission will bring forward recommendations that are bold and practical and I look forward to receiving their proposals next year."