Lib Dems plan 4p cut in tax rate

(Source: BBC)

The Lib Dems want to cut the basic rate of income tax from 20p to 16p in tax changes they say will leave households earning up to about £68,000 better off.

"Green" taxes on cars and flights and the ending of £13.5bn of tax breaks for high earners would fund the cuts.

Council tax would be replaced by a local income tax and inheritance tax and stamp duty thresholds raised.

Leader Sir Menzies Campbell said: "Tax cuts for the majority will be paid for by the wealthy minority."

"The unacceptable reality is that in Britain today the poorest pay a higher proportion of their income in tax than the super-rich."

The Lib Dem plans came in a document called Reducing the Burden: Policies for tax reform.

The plan to reduce the basic rate of income tax to 16p in the pound would leave it at its lowest rate since 1916, the party says.

The party said its proposals were aimed at making things easier for low and middle-income earners "whilst making the rich and people with environmentally damaging lifestyles pay a fairer share".

The plan to replace the council tax would see the bulk of local taxation being paid by those in work, with most pensioners seeing their tax burden cut.

Other proposals include:

• Reaffirming the party's commitment to replacing the council tax with a "local income tax"
• Removing "tax loopholes exploited by the super-rich"
• Reducing stamp duty paid on properties worth less than £500,000
• Raising the starting threshold for inheritance tax to £500,000
• Return business rates to local control
• Simplify the tax code to remove more than 500 pages of regulations
• Bringing money made on UK property by people who are not resident in the UK, within capital gains tax

Sir Menzies said: "Our new proposals will put fairness at the heart of the tax system.

"By reforming stamp duty and inheritance tax we will ensure that people who were not originally intended to pay these taxes no longer do so.

"The unacceptable reality is that in Britain today the poorest pay a higher proportion of their income in tax than the super-rich."

The party says the plans are "tax neutral" - in that they will not raise more tax, but will raise it in different ways - and have been looked at by the Institute of Fiscal Studies.

They have already pledged to replace airport passenger duty with a tax based on a plane's emissions, a higher road tax for high polluting cars, linking fuel duty to inflation and reforming the climate change levy.

And they say they want to close down opportunities for some of the wealthiest people to avoid UK tax, because they are not considered "resident".

The Lib Dems dropped their flagship 50% top tax rate policy after the 2005 general election in favour of taxes on pollution.