Do Lib Dem plans add up?

by BBC News Online's Steve Schifferes

The Liberal Democrats say that they are the only honest party in British politics, promising the electorate better services in return for modest increases in taxation.

Launching their manifesto, Lib Dem leader Charles Kennedy said that "we are not afraid to be honest and ask those who can afford it to pay a small price for a big benefit."

The Lib Dems have promised to increase spending by £11bn by the end of the next Parliament, increasing the number of doctors and nurses by 10,000, the number of teachers by 5,000 and the number of police by 6,000.

They plan to pay for it by increasing the basic rate of income tax by 1p, and increasing the tax rate to 50% for those on incomes of over £100,000.

But like Labour and the Conservatives, they face questions about their long-term aim to cut taxes for the lower paid by over £4bn - which Liberal Democrat Treasury spokesman Matthew Taylor told BBC News Online would be a 'priority' if additional funds were available later in the next Parliament.

And their spending plans show only a modest increase in outlays on key services - and keep Labour plans to reduce the rate of increase in public spending by the end of the Parliament.

Taxing the rich

The Lib Dems are the only partly explicitly committed to taxing the rich in order to pay for more public services.

And the Institute for Fiscal Studies confirms that, in contrast to other parties, their tax proposals would produce losses for the upper income groups as well as gains at the bottom.

The Lib Dems plan to raise income tax by 1p, raising £3bn in the first full year (2002/3) of the next Parliament.

That broadly accords with Treasury estimates which the IFS endorses.

But their other main sources of revenue - which involve taxing the rich more - raise more problems.

Lib Dem tax plans

Income tax up 1p: £3bn

50% tax rate: £3.7bn

Capital gains taxes: £1.3bn

Fraud savings: £500m

The Lib Dems say that the 50% tax rate on top incomes would raise £3.7bn in their first year, rising to £4.6bn by the end of the Parliament.

And they want to abolish some loopholes in capital gains taxes, raising £1.7bn by 2005/6.

The Liberal Democrat Treasury spokesman, Matthew Taylor, told BBC News Online that his party wanted fairer taxation, where those who can afford it pay more.

But that assumes that rich people - including the 300,000 on incomes over £100,000 - will not change their behaviour as a result of these tax changes.

Tom Clark of the independent Institute of Fiscal Studies said that particularly in relation to capital gains tax, where the bulk of income would be raised by changing inheritance rules, there could be scope for more tax planning.

But Mr Taylor told BBC News Online that the 50% rate was a "modest" one - comparable to top rates in Japan, America and Europe - and people were unlikely to try and avoid paying it.

Like the Conservatives, the Lib Dems have also pencilled in £500m worth of savings, rising to £1.5bn - mainly from cutting housing benefit fraud - which Mr Clark says would be difficult to achieve.

And the Liberal Democrats, like Gordon Brown, have targeted tax-cutting ambitions as well.

They say that "when resources allow - on recent trends within the lifetime of the Parliament" they will cut the 10p tax rate to zero, removing 1.4m people from paying tax.

That, however, would cost around £4.5bn - wiping out nearly half the tax increases they have suggested.

More for doctors, nurses, police

The Lib Dems have said their priorities will be more money for the police, health and education, with extra help for pensioners and children.

Lib Dem spending plans

Education: £3bn

Health: £1.6bn

Pensions: £2.8bn

Crime: £150m

Transport: £250m

Child poverty: £200m

But in fact their extra spending plans are concentrated in just three areas: £1.6bn on health, rising to £2.8bn by the of the Parliament; £3bn more on education; and a £2.8bn to fund a £5 per week increase in the basic state pension.

Free public transport for the over 60s and disabled people would add £500m by the end of the Parliament, while there are relatively modest increases in police spending (£150m) and child poverty (£200m).

What it notable about these plans is the modest nature of the Lib Dems aspirations - increasing health spending, for example, by only 5% more, and raising police numbers by only 2000 full-time posts more than Labour

There is one plan, however, that could be very expensive in the long-run: the funding of long term care. No one knows how many elderly relatives currently looked after by their children would take advantage of free institutional care, but fears that this could be very expensive were one reason Labour rejected proposals by the Royal Commission to implement such a change.

The Liberal Democrats have confirmed to BBC News Online that their plans assume - like Labour - that the rate of growth in public spending falls from 3.8% in the next three years of Parliament to 2.25% in the last two years.

Mr Taylor told BBC News Online that if additional funds were available, the Lib Dem's priority would be lowering taxes but cutting the 10p rate, rather than further spending increases. - although he believes that tax revenues are likely to be higher than Labour estimates, making both policy changes affordable.