The Liberal Democrat Manifesto: what it means for your finances

It’s the second of the major political parties to announce its plans if it gets elected, following the Labour Party’s manifesto launch yesterday.

Moneywise has gone through the manifesto and highlighted below which elements will affect your finances. See our election 2017 homepage for our round-up of Labour’s manifesto. We will do the same with the Conservative manifesto when it’s announced.

Retirees 

Maintain the triple lock. The Liberal Democrat party has followed Labour’s suit by promising to increase the state pension each year for the next parliament by the ‘triple lock’ – which is the highest of earnings growth, prices growth or 2.5%. This flies in the face of a recent report from the Work and Pensions Committee, which concluded that the triple lock should be scrapped because it is unaffordable and unfair to younger people that may have a greater need for government support.

Tom McPhail, head of policy at Hargreaves Lansdown, says: “There is a widespread consensus that it [the triple lock] has served its purpose. Rather than locking into a further five years of the triple lock, we'd like to see the next government look again at pensioner incomes, the state pension and the most suitable way to protect them against inflation."

Introduce a single rate of tax relief on pensions. Currently, savers are given tax relief on pension contributions, equivalent to the rate of income tax that they pay. This effectively means that it only costs £80 for a basic-rate taxpayer to save £100, while higher-rate taxpayers only need to pay £60 to have £100 in a pension. But the Lib Dems want to establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions, which would be designed to be “simpler and fairer” and would be “set more generously” than the current 20% basic-rate relief. The government has been expected to change pension tax relief for the past few years, as many critics say it favours the wealthy.  

Tom Selby, senior analyst at AJ Bell, comments: “If there is to be reform to pension tax relief, it should be done in a measured way and agreed cross-party. An independent review of pension tax incentives would help foster this consensus, and all parties should commit to not tinkering with the system once any changes have been introduced. The last thing we want is a huge reform programme to be introduced by one government, only to be torn apart by its successor.”

Taxes

Increase income tax to fund NHS. The Lib Dems say they will introduce an immediate 1p rise on the basic, higher, and additional rates of Income Tax to raise £6 billion additional revenue, which would be ring-fenced to be spent only on NHS and social care services.

 

Reverse a number of the Conservatives’ “unfair and unjustified tax cuts”. These include:

  • The cutting of Corporation Tax from 20% to 17%.
  • Capital gains tax (CGT) cuts. The 18% rate paid by basic-rate taxpayers was reduced to 10% from 6 April 2016 this year, while higher-rate taxpayers now pay 20% instead of the former 28%.

Danny Cox, a chartered financial planner at Hargreaves Lansdown, says: “A reversal of capital gains tax cuts makes no fiscal sense as the amount of CGT collected goes up when the rate of CGT paid goes down as more people are inclined to realise gains. CGT receipts for the first quarter of 2017 were 23% higher than in the same period in 2017 when tax rates were higher, according to HMRC.”

Raise the employee national insurance threshold to the Income Tax threshold. Most people currently pay national insurance of 12% on £157 to £866 a week, and 2% on over £866 a week. They pay income tax on top, at 20% on £11,501 to £45,000, 40% on £45,001 to £150,000, and 45% on over £150,000.  

Housing

Build 300,000 new homes. The Lib Dems have set a house-building target of 300,000 homes a year by 2022, including half a million affordable and energy-efficient homes, with direct government commissioning where the market fails to deliver. These homes will be both for sale and rent.

End Right to Buy.  Local authorities will be enabled to end the Right-to-Buy scheme, which enables eligible council and housing association tenants in England to buy their home with a discount of up to £104,900 (£78,600 outside London). Labour has pledged to suspend this scheme, with councils only able to resume sales if they can prove they have a plan to replace homes sold like-for-like.

 

Increase council tax on second homes. The Lib Dems have pledged to enable local authorities to levy up to 200% council tax on second homes and ‘buy to leave empty’ investments from overseas. At present, councils can give discounts of up to 50% at their discretion for those with furnished second homes or holiday homes. Those with empty homes, however, normally have to pay council tax – although, again, the council can offer you a discount. The council can also charge up to 50% extra council tax if your home has been empty for two years or more.

Shake up the rental market. The Lib Dem manifesto says “even where houses are available to buy, they are often unaffordable for first-time buyers”. As such, it’s made a number of pledged to improve the market, including:

  • Help people who cannot afford a deposit by introducing a new Rent to Own model where rent payments give tenants an increasing stake in the property, owning it outright after 30 years.
  • Improve renting by banning lettings fees for tenants, capping upfront deposits and increasing minimum standards in rented homes. Labour has announced similar housing rental policies, while the current government is already consulting on banning letting agent fees in England. 
  • Help young people into the rental market by establishing a new Help to Rent scheme to provide government-backed tenancy deposit loans for all first-time renters under 30.
  • Stopping developers advertising homes abroad before they have been advertised in the UK.
  • Give tenants first refusal to buy the home they are renting from a landlord who decides to sell during the tenancy at the market rate according to an independent valuation.
  • Promote longer tenancies of three years or more with an inflation-linked annual rent increase built in, to “give tenants security and limit rent hikes”.
  • Improve protections against rogue landlords through mandatory licensing and allow access for tenants to the database of rogue landlords and property agents.

In the workplace

End public sector pay cap. End the 1% cap on pay rises in the public sector and uprate wages in line with inflation.

Help start-ups. Create a new ‘start-up allowance’ to help those starting a new business with their living costs in the first weeks of their business.

Ditch zero-hour contracts. As with the Labour Party, the Lib Dems want to stamp out the abuse of zero-hours contracts. Their idea of doing this is to create a formal right to request a fixed contract and to consult on introducing a right to make regular patterns of work contractual after a period of time.

Up paternity leave. The Lib Dems want fathers to have an additional month’s paid paternity leave. They currently get one to two weeks of paid leave. This is an area the Labour Party is also campaigning on.

Household bills

Cut energy bills. At more than £1,200 a year, the cost of heating and lighting an average home in the UK is “too high”, according to the Lib Dems. To combat this, it says it will:

  • Pass a new ‘Green Buildings Act’ to set new energy-efficiency targets, including a long-term ambition for every home in England to reach at least an energy rating of Band C by 2035.
  • Ensure that at least four million homes are made “highly” energy efficient (Band C) by 2022, with priority given to fuel-poor households.
  • Expand community energy schemes, encourage councils to develop community energy-saving projects and local electricity generation. 
  • Continue to back new entrants to the energy market, aiming for at least 30% of the household market to be supplied by competitors to the ‘Big Six’ by 2022.

 

Labour has also announced number of pledges to reduce household energy bills, while the Conservative Party has already pledged to cap energy prices if they’re re-elected.

 

Disposable cup charge. Building on “the success of our plastic bag charge”, the Lib Dems want to introduce a 5p charge on disposable coffee cups to reduce waste.

Withdraw eligibility for the winter fuel payment from pensioners who pay tax at the higher rate (40%). The winter fuel allowance pays people that have reached state pension age between £100 and £300 (depending on their age and circumstances) every winter. It is intended to help pay fuel bills during the colder months, but recipients can spend it as they wish. Labour had pledged to keep this benefit.

Transport

Improve railways. Ensure that new rail franchises include a stronger focus on customers, including a programme of investment in new stations, lines and modern trains. The Lib Dems will also allow public sector bodies and mutual groups involving staff and passengers to bid for franchises. In addition, the party has pledged to introduce a rail ombudsman to enforce passenger rights and improve the provision of compensation, with the power to sanction rail companies as appropriate.

 

Bus savings for young people. The Lib Dems say they will introduce a new ‘Young Person’s Bus Discount Card’, for young people aged 16 to 21, giving a two-thirds discount on bus travel.
Reform vehicle taxation. This is to “encourage sales of electric and low-emission vehicles and develop electric vehicle infrastructure including universal charging points”.
Ban on diesel car sales. The Lib Dems want to ban the sale of diesel cars and small vans in the UK by 2025, and introduce a diesel scrappage scheme.

Students

Extend free school meals. The Lib Dems want all children in primary education to get free school meals. Currently, children in reception, year 1 and year 2, get free school meals in England, while children in England, Northern Ireland, Scotland and Wales get free schools if their parents receive certain benefits.

Reinstate university maintenance grants for the poorest students. The Lib Dems say this will ensure that living costs are not a barrier to disadvantaged young people studying at university. The Labour party had pledged to reinstate maintenance grants for all and to ban tuition fees.  

Review the student loans system. Establish a review of higher education finance in the next parliament to consider any necessary reforms. This is in the light of the “latest evidence of the impact of the existing financing system on access, participation and quality, and to make sure there is no more retrospective raising of rates, or selling-off of loans to private companies”.

 

Banking

Improve access to banking. In its manifesto, the Lib Dems say: “It is a scandal that in Britain today there are 1.7 million people without a bank account, eight million experiencing problem debt and 40% of the working-age population who have less than £100 in savings.” To tackle the problem, the Lib Dems will take forward the recommendations of the House of Lords Select Committee on Financial Exclusion, in particular by expanding the Financial Conduct Authority’s remit to include a statutory duty to promote financial inclusion as one of its key objectives.

Published: 17 May 2017
Last updated: 29 May 2017

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