The Liberal Democrats might be the only party to remain committed to lowering the national debt but their ideas for personal finance – especially pensions – are “awfully vague”, according to analysts.
With the UK political parties in full campaigning mode for the general election on Thursday 12 December, Trustnet is reviewing their manifestos to see what the experts think of their plans for the economy and personal finance.
Yesterday, the Labour party’s ideas were slammed for the risk of “far-reaching economic chaos”, thanks to radical policies such as re-nationalising parts of several key industries. The Conservatives’ manifesto will go under the spotlight tomorrow but today it’s the turn of the Liberal Democrats.
Much of the party’s campaign has been centred on its promise to stop Brexit but the Lib Dems have made other key pledges like “build a fairer economy”, “tackle the climate emergency” and “give every child the best start in life”.
Jo Swinson, leader of the Liberal Democrats, said: “Our country deserves better than what is on offer from the two tired old parties, each led by men who want to reuse ideas from the past – whether the 1870s or the 1970s – and gamble with our children’s futures.
“Our politics is in a state of flux, and this general election could lead to seismic change out of which a new and different politics can emerge. A politics based on hope, not fear. A politics where every individual and community can thrive, and where we work together to save our planet for future generations.
“For me, the choice is clear. To stop Brexit and build that brighter future, vote Liberal Democrat. We have the plan that this country deserves, and we are ready to deliver it.”
But what do the experts think of the Liberal Democrat manifesto?
All parties’ plans would mean a substantial increase in public investment over the next few years
Source: IFS calculations using OBR Public Finances Databank, OBR fiscal multipliers, and Spending Round 2019
The party has proposed spending an additional £130bn over the next five years on public investment. This would cause public investment to rise to more than 3 per cent of the UK’s national income.
Paul Johnson, director of the Institute for Fiscal Studies, said: “The Liberal Democrats have followed Labour and the Conservatives in promising big increases in investment spending – a little bit more than the Conservative offer, still a lot less than the amount being proposed by Labour.”
However, the IFS pointed out that investment on the scale suggested by all three of the main would face “considerable challenges” in being delivered, whether that be the challenge of finding worthwhile projects in which to invest or the challenges created by shortages of suitably skilled workers in the construction industry.
Despite the plans to boost public investment, the Liberal Democrats still intend to reduce the national debt as a proportion of national income. This is a goal that has been abandoned by both Labour and the Conservatives.
Additional revenues for the increased spending would come from £37bn of tax increases including higher income tax and corporation tax rates, a reform to capital gains tax and a big rise in air passenger duty. The IFS noted that almost £6bn has been attributed to the “dubious if inevitable” anti-avoidance measures.
But the largest single source of income for additional spending comes through a ‘Remain bonus’, which is an estimate of the additional tax revenue (net of payments to the EU) that would come from the UK economy being around 2 per cent bigger if Brexit was avoided.
In the manifesto, the party claimed this is worth £50bn, a figure which is the cumulative total of additional revenues over five years. The Lib Dems claim that this ‘bonus’ would be worth £14bn by 2024–25.
“Of course, there is a lot of uncertainty over such an estimate,” Johnson added. “That said if it were to become clear not only that we were going to remain but that that was a settled state for the long term, we could expect some additional growth and with it additional tax revenue. Their estimate is within the range of plausible estimates for the extent of that additional revenue.”
But while there was some support for the spending and tax policies suggested by the Liberal Democrats, commentators found less substance in the party’s policies for the pensions system.
Jon Greer, head of retirement policy at Quilter, said: “The Lib Dems promises on pensions are awfully vague and suggest they are bereft of ideas on how to affect policy in this area.
“They give a vague assurance they will act on the pensions crisis that is crippling the NHS, but again offer no solution when it is clear the tapered annual allowance is not fit for purpose. The same can be said about ‘addressing inequalities in pensions law for those in same-sex relationships’.”
Greer added that pension policies that the party is certain about – such as retaining the triple lock and providing compensation for women born in the 1950s – are “completely unsustainable in the current economic climate” and lacking in detail on how much they will cost.
Laura Suter, personal finance analyst at AJ Bell, highlighted several other policies in the manifesto which have a direct impact on personal finances, such as the plan to scrap the capital gains tax allowance.
“The Lib Dems say they want to level the playing field between how money earned from investments and from employment is taxed, and so will scrap the capital gains tax allowance and tax gains as if they were income,” she explained.
“This will be a hit to higher earners, who will see the tax on their investment gains increased from 20 per cent to 40 per cent or even 45.”