Introduction
The Government has now announced that the Chancellor will deliver his budget on March 16th.
We can be certain that the General Election will quickly follow.
The Liberal Democrats have traditionally taken this opportunity to set out our alternative budget for the financial year ahead.
This time we will be setting out our economic platform for the General Election.
While Iraq and the issue of trust will be the backdrop to this election; health, education, pensions, crime, the environment, tax – these are the issues which impact directly on voters’ lives.
When it comes to electoral success, the economic credibility of a political party is crucial.
Credibility on two fronts – both what it is promising and what it can be expected to deliver.
I am determined that, at the general election, we will maintain the reputation for economic competence that we have built up over this Parliament.
The Real Debate
We believe the British economy is in reasonably good shape.
The Chancellor has been greatly helped by the decision to make the Bank of England independent - a policy we openly promoted at the 1992 and 1997 General Election - but one which the Chancellor announced only after Labour had won.
With low inflation, low interest rates, low unemployment and steady growth - we believe that the economy can support the spending levels that have been set out by the Chancellor.
But there is no room for complacency.
The need for tough fiscal discipline is as necessary as ever.
There are worrying levels of household debt building up that must be addressed if we are to bring the economy into balance.
Our major disagreement with the Government is not the broad levels of tax and spending - but where taxation should fall – and where the money should be spent.
Before I address those issues – let me just put one Conservative myth to bed.
In polls, people say that they think taxes will rise regardless of which party is in Government.
They are right - they will.
The Government has projected that the overall tax take will rise by 1.8% by 2007/8 as a proportion of GDP.
These are the projections on which both we and the Conservatives have based our spending plans.
In reality the difference between the parties on tax take is minimal.
The £4bn of tax cuts that the Conservatives are promising is but 1/7th of the projected rise in the tax take – 0.3% of GDP.
Taxes under the Tories will go up – not down – by £24bn.
When the Conservatives are forced to recognise that their extra ‘waste savings’ are bogus, they will have to decide which of their pledges is more important – maintaining spending on public services or delivering tax cuts.
Can we really trust the Tories to invest not cut?
The Liberal Democrats
The real issue here is not the broad levels of taxation and spending.
It is one of principle and of priority.
The principle is ensuring that the tax burden does not fall disproportionately on the poor and vulnerable.
Our priority is high quality local public services – not the false choices being offered by the other parties.
Our programme for the General Election will be tightly costed, clear and affordable.
We have a reputation for being straight forward on tax.
That will not change.
We will tell the British people how we will reform the tax system to make it fairer.
There will be winners and losers in this reform – but the majority of people would end up paying less tax.
People know you can’t get something for nothing.
We believe that the priorities we are setting out for spending taxpayer’s money are the priorities of the British people.
10,000 more police of the streets – cutting crime and the fear of crime.
A Citizen’s Pension for the over 75s – £1,400 a year extra on the basic state pension, millions of pensioners off means testing, and an end to the scandalous discrimination against women.
Free Personal Care for the elderly, just as we have delivered in Scotland.
An end to the hidden NHS waiting lists with quick diagnosis for potentially serious conditions so treatment is not delayed.
Free eye tests and dental checks.
An end to top-up fees and tuition fees.
Are we really content to saddle our young people with mortgage style debts as they start their adult lives? No!
Access to higher education should be based on the ability to learn not the ability to pay.
Lower class sizes for our youngest children – because children well taught in their early years have a far better chance of successful and rewarding lives.
A Green backbone running throughout our manifesto so that Britain lives up to its responsibility to future generations.
Polices to make Britain better, fairer, safer.
We will be campaigning on these and others at the General Election.
Of course each one of these priorities comes with a price tag.
If we were in Government, we would re-allocate £5 billion a year of existing Government spending, re-prioritising it to spend in different ways.
This means cutting specific Government expenditure programmes such as Identity Cards, the Child Trust Fund and the final stage of the Eurofighter programme. It also means reforming how Government works, slimming down Whitehall, and selling off unnecessary public assets.
We set out these plans in detail at our Conference in September.
When we launch our election campaign, our manifesto will be accompanied by detailed costings, including any adjustments that have to be made to take account of the Budget in March.
Fair Tax
As I have said our argument with the Government is not the broad level of general taxation but how taxes should be levied.
Fairness is a mark of a decent society.
And fairness is the Liberal Democrat starting point.
Fair local taxes should not be based on house prices like the Council Tax, but rather on income.
We would scrap the Council Tax and replaced it with a local tax based on the ability to pay
Under our plans for taxation 70% of people will be better of or unaffected.
A household on a typical income will pay £450 less tax a year under the Liberal Democrats.
House price inflation has dragged even the cheapest properties into net of Stamp Duty.
When the Stamp Duty levels were set in 1993 only 18% of first time buyers paid it – now it its 75%.
We will therefore raise the Stamp duty threshold from £60,000 to £150,000.
This would exempt almost 500,000 people a year from stamp duty when they buy a home, mostly first time buyers struggling to get on the housing ladder.
We have announced one small tax rise, for income earned over £100,000.
A marginal tax rate of 50p on every penny earned over that amount which will affect just one percent of our tax payers.
The benefits? Free personal care for the elderly, and end to student top-up and tuition fees, and holding down the rate of local taxes.
Targeted taxation for targeted spending commitments.
As I said – in any tax reform their will be winners and losers – especially if the aim is redistribution – a word that I do not shy away from.
But under Margaret Thatcher in the 1980’s, marginal tax rates for the very wealthy were above the rates we are proposing and the world didn’t stop turning - Britain’s economy didn’t grind to a halt.
And under Tony Blair, because of the complex credit regime, 4 in 10 pensioners are paying a 50% marginal rate of tax on the money they earn.
And almost 2 million poor families are paying a 60% marginal rate.
How can it make sense that the poorest in our society pay more of their income in tax than the richest?
We want fairer, simpler taxes for households and business – that is why I will be setting up a Tax Commission after the election to thoroughly review tax policy.
The remit will be to unpick the complexity that has been the hall mark of Gordon Brown and to recommend how the principle of progressive taxation can be applied across the tax system as a whole.
Conclusion
At this General Election, the economic plans of the parties will come under intense scrutiny.
If Labour are true to form, they will duck the issue of taxation. They will spin and obfuscate. They will rule some things out but be coy about what they actually plan to do.
We all remember in 2001 that Gordon Brown said he had ‘no plans’ to raise National Insurance.
He did – and he did it.
Trust in this Government suffered as a result.
And I do not believe that the Conservative plans will stand up to scrutiny.
We have published a detailed analysis of the James review, which underpins the Conservative plans, that shows that £8bn of their savings – twice the level of their proposed tax cut – is unachievable.
And when their headline priority - making over 200,000 public sector workers redundant – costs £5.9bn and is their single largest spending commitment – not only should we question the Conservative’s credibility, but their integrity as well.
The Liberal Democrats have been the real opposition to the Government in this Parliament.
At this General Election we will be the real alternative to the Government.
ENDS
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