The Liberal Democrats have published their manifesto. Although leader Ed Davey won’t make it to Number 10 himself, the policies could influence the direction other parties take given the party is expected to increase its share of seats.
Investors’ Chronicle takes you through everything you need to know.
What the Liberal Democrats think about tax
The Liberal Democrats pledged to “fairly reform” capital gains tax, a move that they hope could raise an additional £5.2bn. (See more details below)
The Lib Dem manifesto outlined a “bold, ambitious and fully-costed plan to give the British people the fair deal they deserve”. According to figures released on Monday, £27bn of spending pledges would be paid for by a suite of measures including capital gains tax reform, a reversal of tax cuts for banks and a crackdown on tax avoidance and evasion.
The party pledged to “manage the public finances with the utmost care and responsibility”, and added that all fiscal events would be accompanied by independent forecasts from the OBR fiscal watchdog. The Lib Dems said their “priority for tax cuts” would be to raise the tax-free personal allowance when the public finances allow. HT
How the Liberal Democrats would tax investors
The party also proposed taxes on FTSE 100 buybacks, higher taxes on oil and gas companies, higher pay for millions of UK residents currently on or near minimum wage salaries, and the construction of far more houses.
A buyback tax would be set at 4 per cent “to incentivise productive investment, job creation and economic growth”. The party also said the next government should put back the surcharge on banking profits back up to 8 per cent, from 3 per cent. AH
Housebuilders
The Lib Dems pledged to ensure 380,000 new homes would be built each year, including at least 150,000 in social housing. The party said it would build 10 new garden cities and incentivise the development of housing on brownfield sites. It would also introduce ‘use it or lose it’ planning stipulations to stop developers from sitting on undeveloped sites.
The housing targets set by the party are “the highest we have seen so far” by any party, said Anthony Codling, an analyst with RBC Capital Markets. The government’s current target is 300,000 homes per year, but it has been falling well short of that. On average, around 190,000 homes per year have been built over the past 20 years, although this picked up to 234,000 in 2022-23.
Although housebuilders will welcome the increased focus on the sector, an immediate requirement for all new homes to be built to a zero-carbon standard and the‘use-it-or-lose-it” provision will be a concern, Codling said – particularly for those with large land banks such as Berkeley (BKG), Persimmon (PSN) and Taylor Wimpey (TW). MF
Industrial strategy
A new industrial strategy will be “focused on the skills of the future UK economy, such as the renewables industry, the digital and the bioscience sectors". It will also “tackle long standing problems in defence procurement”.
It would be overseen by a new Industrial Strategy Council, which would have statutory powers. Employee ownership would be encouraged by giving workers in listed companies the right to request shares.
The party also wants to extend the scope of public interest tests for when “large or strategically significant” UK companies receive takeover bids from foreign buyers. MF
Oil & gas producers
The manifesto also outlined a “one-off windfall tax on the super-profits of oil and gas producers and traders”. North Sea energy producers have already slowed investment off the back of the government’s windfall tax brought in two years ago, and profits have tumbled on lower oil and gas prices. A one-off tax would remove longer-term uncertainty, but the Lib Dems did not detail how large this payment could be for companies. The ability to access to the biggest trading firms’ profits would also be unclear, although Vitol’s UK arm, Vitol Broking, reported sales of £1.5bn in 2022 and a tax bill of £61mn, on a profit of £312mn. Glencore (GLEN) is registered in Jersey and its trading activities largely take place in Switzerland.
Paul Johnson, director of the Institute for Fiscal Studies think tank, warned of clear risks that the measures would not raise the amount they claim. He said that taxes on banks, tech companies and energy firms would not be “victimless”, adding that “we are already raising more from taxing companies than at any time in decades”. AH
What the Liberal Democrat proposals mean for savers
The Lib Dems also proposed to increase capital gains tax (CGT) rates in their election manifesto, which they say would raise £5.2bn a year to fund the NHS.
Under the proposal, CGT would be levied at 20 per cent for gains up to £50,000, at 40 per cent for gains between £50,000 and £100,000, and at 45 per cent for gains over £100,000, in line with income tax rates.
The rate would be based solely on gains, rather than by adding together income and capital gains as it is at present. Higher-rate taxpayers currently pay a 20 per cent rate on gains from assets, other than residential property which is taxed at 24 per cent.
The Lib Dems also want to increase the CGT allowance from £3,000 to £5,000 and introduce a new “inflation allowance”, so that any gains that result from inflation are not taxed. “Most people are paying far too much when they sell a property or a few shares, because the system doesn’t account for inflation over the time they’ve owned them,” the party said. At the same time, the proposal targets “super wealthy people” who use the existing CGT system to “avoid paying the rates of income tax everyone else does”, it added.
Tax campaigner and lawyer Dan Neidle deemed the proposal “sensible”, but argued that it would struggle to raise the budgeted amount. Preannouncing a CGT increase tends to result in people quickly crystallising gains before the hike becomes effective, reducing potential tax revenues.
The Lib Dem manifesto also singled out raising the personal allowance as a priority for tax cuts “when the public finances allow”, and committed to maintaining the state pension’s triple lock. VC
