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Last Updated: Thursday, 12 July 2007, 13:05 GMT 14:05 UK
Lib Dems plan 4p cut in tax rate
Sir Menzies Campbell
Lib Dems say the new proposals will be "tax neutral"

The Lib Dems want to cut the basic rate of income tax from 20p to 16p in tax changes they say will leave households earning up to about £68,000 better off.

"Green" taxes on cars and flights and the ending of £13.5bn of tax breaks for high earners would fund the cuts.

Council tax would be replaced by a local income tax and inheritance tax and stamp duty thresholds raised.

Leader Sir Menzies Campbell said: "Tax cuts for the majority will be paid for by the wealthy minority."

The unacceptable reality is that in Britain today the poorest pay a higher proportion of their income in tax than the super-rich
Sir Menzies Campbell

The Lib Dem plans came in a document called Reducing the Burden: Policies for tax reform.

The plan to reduce the basic rate of income tax to 16p in the pound would leave it at its lowest rate since 1916, the party says.

The party said its proposals were aimed at making things easier for low and middle-income earners "whilst making the rich and people with environmentally damaging lifestyles pay a fairer share".

The plan to replace the council tax would see the bulk of local taxation being paid by those in work, with most pensioners seeing their tax burden cut.

Other proposals include:

  • Reaffirming the party's commitment to replacing the council tax with a "local income tax"

  • Removing "tax loopholes exploited by the super-rich"

  • Reducing stamp duty paid on properties worth less than £500,000

  • Raising the starting threshold for inheritance tax to £500,000

  • Return business rates to local control

  • Simplify the tax code to remove more than 500 pages of regulations

  • Bringing money made on UK property by people who are not resident in the UK, within capital gains tax

Sir Menzies said: "Our new proposals will put fairness at the heart of the tax system.

"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."

'Tax neutral'

The Liberal Democrats says the plans are "tax neutral" - in that they will not raise more tax, but will raise it in different ways - and have been looked at by the Institute of Fiscal Studies.

They have already pledged to replace airport passenger duty with a tax based on a plane's emissions, a higher road tax for high polluting cars, linking fuel duty to inflation and reforming the climate change levy.

When you look at the small-print of the Lib Dem proposals, you find that millions of families will be hit by their proposals for a new local income tax
Philip Hammond
Shadow chief secretary to the Treasury

And they say they want to close down opportunities for some of the wealthiest people to avoid UK tax, because they are not considered "resident".

But the Conservatives said the Lib Dems' plan "falls apart on close inspection".

Shadow chief secretary to the Treasury Philip Hammond said: "They say they are helping families, but when you look at the small-print of the Lib Dem proposals, you find that millions of families will be hit by their proposals for a new local income tax."

The Conservatives have said they will not promise "up-front, unfunded tax reductions at the next election" and will only reduce taxes later as the result of continuing economic growth. But they do support green taxes and say they want to shift the tax burden from income and investment to pollution.

The Lib Dems dropped their flagship 50% top tax rate policy after the 2005 general election in favour of taxes on pollution.

Your comments

Whether you agree with the proposed Lib Dem tax cuts or not, at least they're bringing ideas to the table. I've not heard a decent idea from the Tories yet¿
Alex Pepper, Cardiff, Wales

As always the Lib Dems can come up with any crack-pot idea as they know as well as the rest of us that they will never have to chance to implement it.
Adrian Cotton, Bedford, UK

The proposed tax changes seem good at first view, as does the proposal to give married couples a benfit amounting to £20 per week. My only reservation to all these proposals is they all seem a ploy to get the vote but there is no mention of where other taxes may effect us - ie - tax on fuel or elsewhere which will mean whatever they give us in these proposals will be taken out somewhere else.
Simon Latham, Walsall UK

Why don't the Liberal/Dems concentrate their energies trying to be constructive toward the encumbent government instead of coming away with policies whilst eye-catching are meaningless because they have no realistic chance of being elected and therefore no prospect of implementing these proposals.
John Blakey, Washington, UK

I voted Lib Dems in the last election but wasn't going to this time around. However I've now changed my mind and will be voting for them again, I'm sick to death of Labour stealth taxing everything. I pay tax on tax on tax. Right now I have to pay tax on a work fuel card or get 12p per mile which doesn't cover my costs so either way I end up paying to work!!
Simmi, Nottingham

So the plan is to tax those that are financially secure enough to move countries? I'm seeing a flaw.
Mark, London

Well done Lib Dems, the only party willing to be honest with the British people. These proposals will encourage environmentally friendly wealth generation.
Fergus Dodd, London, England

Why is it that politicians, even ones as old as Menzies Campbell, cannot resist promoting policies which appeal to the worst in us all? Pressing the envy button so often is really pathetic. They are also too ready to rattle on about green taxes and other 'acceptable' ways of accumulating our wealth into government coffers. The Lib Dems need to get off our backs and find ways of NOT collecting taxes.
Wickedlymale, Stockport

It is a very good news for poor people like me and fair for every citizen in the country. Keep up the good job you are doing Sir Menzies!
A Ibrahim, Northampton

There are details about what low-end taxes will be modified, but there are no specific details of exactly which taxes and allowances that high earners pay will be changed, so how can anyone make a decision as to whether this is a good or 'fair' package or not?
Paul Hill, Halesowen, UK

I would be more likely to vote Lib Dem due to their proposed changes in the tax system. I am a single parent earning £19,000 and I think that I am taxed far too much compared to the high earners.
Lisa Anderson, Manchester, UK

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