Liberal Democrat Conference has today voted for a motion designed to spread opportunity, power and wealth more fairly throughout society and to give everyone a stake in the UK’s economic success.

The party expects these reforms to raise an additional £15 billion per year, though this is likely to grow as the rate of wealth passed down increases in the coming years.

Motion proposals include:

• Overhauling inheritance tax – taxing recipients progressively on all large gifts received at the same rates as income from employment, above a generous tax-free lifetime allowance, instead of the current system of levying tax on the value of an estate left behind
• Taxing capital gains and dividends – equalising the tax treatment of wealth and work by taxing capital gains and dividends through the income tax system
• Reforming pension tax relief – introducing a flat rate of relief on pension contributions, thus rebalancing relief towards lower earners; and limiting the tax-free lump sum the wealthiest can withdraw from their pension pots
• Lifelong learning and a “Citizens Wealth Fund” – using the revenues from wealth taxation to invest in public services, fund an ambitious programme of lifelong learning to prepare workers for the future economy, and establish an independent Citizens Wealth Fund to invest on behalf of the country

Liberal Democrat leader Vince Cable said:

“While the Conservatives talk about burning injustices, Liberal Democrats take them seriously. That is why my first major speech as leader was on inequality, in particular the widening inequalities of wealth and opportunity between the generations that risk tearing up the social contract.

“This motion represents a serious and informed response to this challenge. They follow closely on the work of the Resolution Foundation and the IPPR, which have reached similar conclusions on the policies needed to address Britain’s deep economic divides.

“While it is increasingly clear that taxes will have to rise if we are to afford the crucial public services and investment we all rely on, hard-pressed workers should not be the only ones paying up. It is time to put Britain’s wealth to work.”

Baroness Kramer, Liberal Democrat Treasury Spokesperson said:

“Everyone wants better opportunities for their children and grandchildren. But while this used to be taken for granted, belief in intergenerational mobility is fading fast.

“The proposals we are setting out today are a serious step towards redressing the economic imbalances between the generations, which is vital to achieving that goal.

“To put the nation’s wealth to work, we would establish an independent Citizens Wealth Fund – drawing on the successful experience of countries such as Canada and Norway – and launch an ambitious programme of lifelong learning to prepare workers for the future economy.”

Notes:

According to the ONS, 44% of UK wealth is owned by 10% of households, whilst only 9% is owned by the poorest half of the population.

The spokesperson’s paper “Giving Everyone a Stake” can be found here.

Conference notes that:

i)    Wealth is extremely unevenly distributed in the UK, with 45% of UK wealth owned by 10% of households, and just 9% owned by the bottom 50%.

ii)    Wealth inequality is twice as severe as income inequality, as measured by the Gini coefficient.

iii)    Between 2010 and 2014, over half of the net increase in wealth was received by the top 10% of households.

iv)    Although UK net wealth has increased from around 300% to almost 700% of GDP over the last 60 years, wealth taxes bring in revenue worth only around 4% of GDP, the same proportion as in the mid-1960s.

v)    Wealth inequality is expected to worsen in the coming years, due to stagnant wages and rising debt, automation, growing numbers of young people unable to get on the housing ladder or save for the future, and an increasing flow of inheritances.

vi)    Liberal Democrats have long advocated for raising a greater share of tax revenue from wealth, and have previously called for reforms to inheritance tax, capital gains tax, pension tax relief and property taxation to achieve this.

Conference believes that:

a)    Wealth inequality and the concentration of economic power are economically and socially damaging.

b)    Britain’s deepening wealth gap rigs society in favour of those with substantial wealth and those able to inherit it, and has contributed to a growing intergenerational, geographical and class divide.

c)    The Liberal Democrats should embrace the prosperity and innovation generated by the market economy, but also recognise its tendency to concentrate resources and power among a minority.

d)    Capitalism has only thrived thanks to the bold reforms – such as the welfare state and the breaking-up of monopolies – of liberal visionaries; these are needed once again if it is to survive the 21st century.

e)    The tax system must play a greater role in promoting a more equitable distribution of wealth; taxation reflects the fact that wealth creation is reliant on public goods such as infrastructure and a healthy, educated labour force.

Conference notes the proposals in the spokesperson’s paper, Promoting a Fairer Distribution of Wealth, and calls for:

1.    Equalising the tax treatment of income from wealth and income from work by: abolishing the separate capital gains and dividend tax-free allowances and instead taxing these through the income tax personal allowance; aligning capital gains and income tax rates while introducing a basic inflation or “rate of return” allowance; abolishing capital gains forgiveness at death, which creates an incentive to hold on to assets to avoid paying tax.

2.    Streamlining the taxation of intergenerational transfers by: abolishing inheritance tax and instead taxing recipients at income tax rates and bands of œ250,001 to œ500,000, œ500,001 to œ1 million, and above œ1 million; ensuring that all transfers – not just those made at or near the giver’s death – are subject to tax; giving each person a generous œ250,000 lifetime tax-free allowance, and exempting small annual gifts below a specified amount and all transfers to spouses and charities.

3.    Reforming the current regressive system of pension tax relief by: introducing a flat rate of 25% on pension contributions and abolishing employee National Insurance payments on those contributions, substantially boosting incentives to save among lower earners while reducing relief for higher earners; limiting the current tax-free lump sum people can withdraw from their pension pots from 25% to œ40,000, reducing tax relief for the wealthiest pensioners while leaving 75% of drawdowns untouched.

4.    Making the taxation of residential property fairer by: immediately introducing additional higher bands to make council tax more progressive; reviewing the case for replacing council tax with a simple percentage-based annual property tax based on up-to-date valuations, as is the case in most other developed economies and as recommended by the OECD, Resolution Foundation, IFS and IPPR.

5.    Revenues from higher wealth taxation to be allocated to a combination of: lower taxes for young people and low earners; increased investment in infrastructure and education; an independent, professionally managed Citizens’ Wealth Fund, which by investing in assets would earn an annual rate of return that could be used to boost public spending or be returned to citizens in the form of an annual dividend.

Applicability: Federal; except 4 (lines 66-72) which Is England only.