Kennedy Announces Chairman and Remit of New Tax Commission

12.13.51pm UTC (GMT +0000) Tue 24th May 2005

On Tuesday morning (24th May) Charles Kennedy, Leader of the Liberal Democrats, will set out the remit of the Liberal Democrats' new Tax Commission. Addressing the Liberal Democrat 'Business Forum' breakfast at the Commonwealth Club in central London, Mr Kennedy will tell his audience:

"In order to challenge for power at the next election, the Liberal Democrats must demonstrate over this Parliament that the economy will be safe in our hands. To maintain that credibility, the carefully costed plans we laid out at the election will necessarily be updated, taking account of the direction of the economy and the requirements of society.

"Taxation should be fair - based on people's ability to pay. It should be straightforward and open - so that people see where their money is being spent. Taxation should frame a competitive business environment and it must encourage sustainability, with economic instruments used to deliver public policy objectives.

"This is the liberal approach to taxation. It offers a real alternative and stands in stark contrast to the hallmarks of the Labour approach under Gordon Brown - complication, stealth, and short-termism."

Former senior civil servant, Michael Williams, has been tasked to head up the new Tax Commission. Commenting on his appointment, Mr Kennedy said:

"Michael is a former senior Treasury civil servant with over 30 years experience working at the heart of UK economic policy. Between 1998 and 2003 he established and ran as Chief Executive the UK Debt Management Office. He now works as a distinguished economic analyst and international economic consultant.

"I am sure that under the chairmanship of Michael Williams, the Tax Commission will bring forward recommendations that are both bold and practical and I look forward to receiving their proposals next year."

The remit of the new Tax Commission follows in Notes to Editors:

ENDS

Notes to Editors:

Tax Policy Working Group Remit:

The last full policy paper to look at the direct tax system as a whole was Policy Paper 7 Opportunity and Independence for All (1994), and the last full policy paper to look at environmental taxation was Federal Green Paper 32, Taxing Pollution, Not People (1993) although aspects of tax policy have been covered within a number of other papers including the general public services policy paper Quality, Innovation, Choice (2002). Policy on environmental taxation was most recently set out in the Conference Motion making Markets Work for the Environment (September 2004).

The group's remit will be:

To completely update the Party's policy on tax, in a paper of no more than 10,000 words, to go to the autumn 2006 Party conference. The paper will include both a statement of key principles and specific policy proposals, and will provide key policy material for the next general election manifesto. The group will take into account views expressed at a Consultative Session to be held at the Autumn 2005 Party Conference; and will be expected to consult a range of relevant external organisations. The group should consider the full range of direct and indirect taxes, including taxation of income, capital and property.

Aspects of tax policy the group will need to consider include:

· Simplicity and Efficiency: Under Labour taxation has become unnecessarily complicated. Waste and bureaucracy must be reduced, to ease the burden on individuals and businesses, and leave more resources available for investment in services. The tax credit system in particular has complicated the tax code; and the group should consider the case for integrating income tax and NICs.

· Fairness: Tax bands, rates and reliefs should ensure that everyone contributes according to their ability to pay and that the overall burden is fairly shared. Liberal Democrats should aim to take low earners out of the tax net altogether, while maintaining incentives across all income bands. The role of tax credits should be examined.

· Honesty: Taxpayers should be able to see for themselves how their taxes are being spent. The group will consider the case for hypothecating taxes to particular services, and for allowing taxpayers to express their preferences on spending priorities more directly.

· Competitiveness: Tax policy must recognise that the UK economy exists within a competitive global market and that domestic tax policy cannot be set in isolation from the prevailing levels of taxation in competitor countries. The group will need to take account of the impact of business taxes on competitiveness.

· Tax avoidance and evasion: The group will need to consider both how the overall system can be reformed to reduce the opportunity and incentives for tax avoidance, and how to tackle tax evasion.

· The EU Framework: While direct taxes are wholly a matter for Member States, the EU Treaties call for harmonisation of indirect taxes, and there are also debates around the scope for the EU to restrict 'tax competition' and to promote tax co-operation to ensure that tax systems do not create unnecessary barriers within the internal market. The group will need to form a view on the appropriate level of community action in the field of taxation and its implication for UK tax policy.

· Sustainability: Taxes should discourage the things the community does not want, like pollution, and encourage the things it does want, such as more jobs. The group will need to consider the appropriate place of tax measures and other economic instruments in giving the right environmental incentives. The group should also consider the place of the tax system in delivering other policy objectives, for example public health objectives.

· Decentralisation to nations, regions and localities: The group should consider within an overall Federal structure what taxation powers should be available to different tiers. This will have to be related to our proposals for reform of the Barnett system for distributing central grants. Close co-ordination will be required with the working group on devolution and local government.

The group will in general make recommendations on the direction of tax reform rather than being expected to produce a full schedule of tax rates, thresholds and exemptions.

Because of the range and complexity of its remit, the group will need to establish a series of sub-groups.