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Tuesday, 15 May, 2001, 14:22 GMT
Liberal Democrats: The economy

Find out more about Liberal Democrat policies on tax, spending, and the economy


BACKGROUND

The Liberal Democrats are the only one of the main political parties that explicitly wants to raise taxation in order to fund better public services.

The LibDems have long argued that a 1p increase in the basic rate of tax was needed to increase spending on education.

And they have argued for an increase in the higher tax rate to fund health spending.

The Liberal Democrats also believe that the UK's membership of the euro is vital for its future economic prospects.


THE ECONOMY

The Liberal Democrats accept that the economy is in strong shape.

But they are worried by the situation in the manufacturing industry, and the rural sector, which they believe are partly caused by high and unstable exchange rates.

The LibDems say that they first proposed to give the Bank of England operational independence.

They would like to strengthen that independence by limiting members of the Monetary Policy Committee to a single term of office.

They also argue that joining the euro - but at a lower exchange rate than is currently the case - would give a vital boost to UK industry.


TAXES

The Liberal Democrats want taxation to be open and fair, and propose a Citizens Tax Contract to show people where their money has gone.

They have identified three areas for tax increases, raising 8.5bn in the first full year of a new Parliament, rising to 11bn in the fifth year.

First, they want to increase the basic rate of income tax by 1p, raising 2.8bn more each.

Then, they argue that taxpayers who earn over 100,000 per year should pay a higher tax rate of 50%, which they say will raise 3.7bn in the first full year of a new Parliament.

Around 300,000 people report income of over 100,000 per year, according to Inland Revenue figures.

Finally, they argue that changes to capital gains taxes - the taxes paid when people's assets, like shares, gain in value - could add another 1.2bn to the Chancellor's coffers.

The LibDems also want to target any tax cuts on those with lowest incomes, by reducing the 10% tax band to zero to simplify the tax system.

That would cost around 4.5bn, which the Liberals say they would implement "when resources allow - on recent trends within this Parliament."

Overall the LibDems argue that their tax approach is fairer, because it targets those who can afford to pay, and more honest, because it avoids stealth taxes.


SPENDING

The Liberal Democrats are highly critical of Labour's freeze on public spending during its first two years in office.

They say that spending on health and education is now lower as a percentage of GDP than when John Major was in office.

The Liberal Democrats want to concentrate their spending on three priorities: health, education, and pensions, increasing Labour's plans by 8.5bn next year.

They want to increase spending on education by 3bn, increase the funding of the state pension by 2.8bn, and add an additional 1.6bn for the health service by 2002-03, rising to 2.8bn by the end of the Parliament.

Older pensioners would be the particular beneficiaries of LibDem policies, with an increase in the basic state pension of 10 per week for the over-75s, and 15 per week for the over 80s, while all pensioners will be at least 5 per week better off.

The LibDems also want to boost spending on the NHS, providing 4,000 extra hospital beds, recruiting 10,000 more nurses and doctors, and boosting all nurses' salaries by 1000 per year.

And they are committed to funding all the cost of long-term care for elderly people in nursing homes, which they say will cost 800m each year.

On education, they want to cut primary school class size to 25 pupils, and fund an additional 5,000 secondary school teachers each year.

They also want an additional 6,000 police officers.

And they plan to offer free travel on public transport for disabled people and all those over 60, at a cost of 500m per year.

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