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Last Updated: Thursday, 14 April, 2005, 10:35 GMT 11:35 UK
Election fact check: Lib Dem tax plans
THE CLAIM

Labour say the Liberal Democrats "have policies that are unsustainable without higher taxes because their commitments are so large," while the Conservatives say "a vote for the Liberal Democrats is a vote for higher taxes".

BACKGROUND

The Liberal Democrats say their policies "have been thoroughly and meticulously costed". They plan to raise 5.1bn a year by introducing a new top rate of income tax of 50p for earnings over 100,000. They will use this to pay for the abolition of university tuition and top-up fees, free personal care for the elderly.

It will also provide a 2bn subsidy to make sure more people gain than lose from their plans for a new local income tax to replace council tax. The Liberal Democrats are also hoping to save 25bn in wasteful government spending.

THE FACTS

There are questions as to whether their planned higher rate tax would yield 5.1bn per year. Many experts believe it is likely that some people with incomes over 100,000 will find ways to avoid paying it, meaning that it will raise less money then might theoretically be raised (although it is also possible that others would work harder to compensate for the extra tax they were paying).

The Liberal Democrats have admitted they will have to put aside a contingency fund in case this tax doesn't yield enough.

Some of their savings, for example, abolishing the child trust fund to pay for smaller primary school classes, may seem straightforward, but the child trust fund costs 245m per year, while the full cost of smaller class sizes for younger children is 450m.

Other savings, for example saving 6bn by abolishing the Department of Trade and Industry and many business services, may not be achievable.

That would make it more difficult to pay for policies like the introduction of a "citizen's pension" of 100 per month for all pensioners over age 75, costing 12.6bn over the life of the Parliament.

The Liberal Democrats have also made the same assumption as Labour that taxes will rise more quickly than the rate of economic growth, shrinking the budget gap without the need for further tax rises.

Many independent experts, including the IMF and the Institute for Fiscal Studies, are not sure that tax receipts will rise this quickly automatically.

If they don't, then the Liberal Democrats would have to consider further tax increases or further cuts in other areas of spending to fund their plans.

THE CONCLUSION

The Liberal Democrats' approach has some of the same weaknesses as Labour and the Conservatives on taxation - they are relying on optimistic assumptions both on savings and on the amount they can get from tax.

But they say that if the budget deficit was worse than expected, they would squeeze spending rather than raise taxes further.





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