Lib Dems promise "tax overhaul"

14 April 2010

The Liberal Democrats pledge to raise the state pension and cut tax for low and middle earners in a bid to “hardwire fairness into British society" should they win the election.

The party also revealed plans to overhaul taxes, scrap the compulsory retirement age and change energy tariffs.

It has already pledged that the first £10,000 of UK earnings would be tax-free for low and middle earners. It says this will leave millions of people £700 a year better off and take about 3.4 million of the lowest-paid people out of tax altogether.

Liberal Democrat leader Nick Clegg says: "Under Labour the tax system is complex, unwieldy and most of all unfair. This has to change. Liberal Democrats will rebalance our tax system to make it fair once and for all.

“We are proposing the biggest tax switch in generations. A radical overhaul to make sure those at the top pay their fair share in order to put money back in the pockets of people who need it.”

The £17 billion tax cut would be paid for by raising capital gains tax, cutting pensions relief for high earners, increasing aviation taxes and by a "mansion tax" of 1% on properties worth £2 million or more.

Another key policy is raising the state pension each year in line with earnings or inflation, whichever is highest.

Clegg says his policies to raise the state pension and cut taxes for low and middle earners combined “hope and credibility”.

The Liberal Democrats also plan to break up banks into retail and investment sections and introduce a banking levy to pay for the state support they have received. The UK Infrastructure Bank would be set up offering stable long-term returns on savings and private finance, and Northern Rock turned into a building society.

Other measures set out in the manifesto include ensuring that banks can't charge customers unfairly for going over their limit or bouncing a cheque, a cap on interest rates charged by credit cards and store cards, and real terms cuts in rail fares.

Clegg says: “A Liberal Democrat government will legislate to ensure that no bank can charge its customers unfairly for going over their limit or bouncing a cheque. Banks should, of course, be able to pass on the costs they incur in dealing with these problems.

"But they should not be able to profiteer from customers making small mistakes. We will outlaw unfair charges from now on.”

Kevin Mountford, head of banking at, says the Lib Dems missed a trick with this consumer manifesto, saying it should have focused more on financial exclusion, as well as tackling the introduction of compulsory financial education in schools.

“The Lib Dems know that bank bashing will be popular with voters, but the reality is that we have seen several high profile challenges by the Office of Fair Trading (OFT) on various ‘unfair' charges and the industry has already come a long way in resolving many of these issues,” he says.

“There's a trade off here because most customers run their accounts in such a way that they never pay these charges.  Perhaps the Lib Dems want to see all of us paying monthly fees to run our current accounts?"

Under the Lib Dems, university tuition fees would be phased out within six years while fees for final-year students would be scrapped immediately. The target of 50% of people going to university would also be scrapped.

Parents would be able to share parental leave under the party’s plans and it would be extended to 18 months over time. Fathers would also have the right to attend ante-natal appointments and grandparents could request flexible working.

Every child from the age of 18 months upwards would receive 20 hours of free childcare. However, child trust fund payments would be reduced.

The party also plans a pensions overhaul so that tax relief on pensions is only at the basic rate. That way everyone gets the same tax relief on their pension contributions, with capital gains taxed the same way as income.

There would be an independent review of public sector pensions, with the aim of ensuring they are "sustainable and affordable" in the long-term, while personal pensions would be more flexible so people could access funds early in times of financial hardship.

The Liberal Democrats also pledge a year-long “eco cashback” scheme to offer £400 to install double glazing or replace an old boiler. However, winter fuel payments would be delayed until the age of 65 but extended to severely disabled people.  There would also be a change to energy tariffs so first “essential” use of energy is cheapest.

Setting out his agenda, which he insisted was fully funded, Clegg says he wants to turn "anger into hope, frustration into ambition and recession into opportunity".

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