FactCheck: Lib Dem tax plans
Updated on 19 September 2007
Ming Campbell says his party's tax proposals would benefit nine out of ten households. FactCheck says otherwise...
The claim
"90 per cent of households would benefit as a result of our tax proposals"
Menzies Campbell, The Andrew Marr Show, BBC One, 16 September 2007
The background
Another year, another set of 'Robin Hood' tax policies. The Lib Dems are using their annual conference to trumpet plans - on which they will vote today - to shake up the tax system by taking from rich and giving to the poor.
Well, not just the poor, most of the country, in fact.
Eye-catching moves include the reduction of the basic rate of income tax by 4p in the pound, partly funded by an increase in levies on environment-harmers such as flying and 4x4s.
The party also wants to scrap council tax and replace it with a local income tax.
Using unusually strong language for a mainstream politician, Ming Campbell appeared to agree with Andrew Marr's suggestion on Sunday that the top 10 per cent would be "absolutely hammered", saying "yes, yes" in response and adding that top-earners had done "too well" under Labour.
Instead, he promised that 90 per cent of households - 20 million or so - would be better off under the Lib Dems.
Have they really got their sums right?
The analysis
Sir Menzies is making a sweeping claim about a complicated mixture of policies. Already, the alarm bells should be ringing.
Firstly, let's look briefly at the calculations behind the plans themselves.
Probably the best way to understand how the books have been balanced is to look at the plans as the scrapping of council tax, and a set of measures to pay for this - increased environmental taxes, changes to capital gains tax, pensions reform and a new local income tax.
Each would bring in a quarter of the necessary funds.
The Lib Dems have taken into account the fact that environmental taxes might affect behaviour - which they want them to do, after all - and therefore bring in fewer pounds than would be expected under the current tax model.
However, on the other three measures - the local income tax, pensions reform and CGT reform - they have not anticipated a change in behaviour.
According to Stuart Adam, a senior research economist at the Institute for Fiscal Studies, the likely effect of the pension reform, although complicated, could be to bring in more money.
Shift the boundaries a bit - perhaps by adding another 4x4 into the family's mix, and a different result would come up.
The other two measures, however - local income tax and the change in capital gains relief - would be likely to go against Lib Dems.
Levying higher taxes on those with more money is tricky, as people tend to find loopholes to avoid paying so much tax, potentially leaving the party with a big leaky hole to plug.
Still, if not entirely watertight, the party's numbers do appear to float.
Now let's look at how the plans would affect the voters.
Gains would generally be made by people who are paying a lot of council tax - particularly those on middle incomes, as those right at the bottom are eligible for council tax benefit.
Losses, meanwhile, would hit those whose assets have risen in value, or who buy gas-guzzling cars.
As Adam points out, it's impossible to say whether those are same people.
The Lib Dems reckon that households with an annual income of more than around £68,000 will be better off under the proposals, though this depends on a precise "household" model being taken as the base.
Shift the boundaries a bit - perhaps by adding another 4x4 into the family's mix, and a different result would come up.
'It's true there will be more winners than losers, but you just can't say there's going to be a 90-10 split.'Stuart Adam, Institute for Fiscal Studies
So, where does this 90 per cent claim come from? A party spokesman told FactCheck it was worked out purely from looking at the impact of the change from council tax to a local income tax.
This isn't the same as Ming's claim; he came out fighting for the benefits of the measures as a package, rather than one aspect of them.
And even if he had taken this more nuanced approach, the 90 per cent figure is still decidedly dodgy.
The party reckons it came on the back of research by the IFS, which showed that, if the population was split up into 10 groups, most of those in the richest group would lose out and most of those in the nine bottom groups would gain.
This just isn't, according to Adam, the same as saying that 90 per cent would benefit. Nor was the IFS's research even referring to the same policy to which the Lib Dems have applied it.
The finding was based on older plans, which gave away more money than they made, whereas this year's break even.
This doesn't mean that the claim in itself is wrong but it doesn't show that it's right, either.
"It's true there will be more winners than losers, but you just can't say there's going to be a 90-10 split," said Adam. "It may be that there's a large group that won't be affected at all."
Verdict
This is, in general, a redistributive set of policies that would see many people gaining - particularly those from middle-income households who would feel the greatest relief when council tax was ditched.
But to conclude that 90 per cent of households would be better off is a leap of largesse too far.
There just isn't the evidence to back it up - and with the IFS, the country's most respected independent financial thinktank, unable to see how the necessary calculations could be done - there isn't likely to be any time soon.
Despite what people might say in opinion polls, tax cuts or rises are a big issue at the ballot box; so to cite precise income figures and promise benefits for 90 per cent of people on this basis seems pretty disingenuous.
FactCheck rating: 3.5
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Sources
The Andrew Marr Show, BBC One, 16 September 2007
Reducing the Burden
The IFS
FactCheck: Are Lib Dem tax plans fairer?
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