Lib Dems Propose Universal Free School Meals Funded by New Share Buyback Tax

The Liberal Democrats have unveiled a proposal to fund universal free school meals for children in primary education through a 4% tax on corporate share buybacks, which they estimate could generate £1.4 billion.

Political journalist @fayebrownSky

Friday, May 31, 2024, 4:

The Liberal Democrats have unveiled a proposal to provide all primary school students with complimentary school lunches, which would be financed through a newly introduced tax on share buybacks.

In a strategic move that may challenge the Labour Party, the Liberal Democrats announced a proposal to immediately expand free school meals to include all 900,000 impoverished children who are presently not receiving them.

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In the subsequent stage, free meals would be provided to every elementary school student as the government's fiscal situation improves.

While campaigning today in Harpenden, Liberal Democrat leader Sir Ed Davey stated, "It's crucial that children from the poorest families, who are truly battling with living costs, receive a warm meal during lunch. This policy would easily cover the costs."

The commitment, which will appear in the party's platform, is set to be financed by imposing a 4% tax on the share repurchases made by companies listed in the FTSE 100.

The party stated that this is akin to the buyback excise tax introduced by President Biden in the US, and it could potentially generate approximately £1.4 billion annually.

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A share repurchase occurs when a company reacquires its own stock from the marketplace, aiming to boost its value as a means to distribute surplus funds to its shareholders.

The Liberal Democrats have criticized the policy for enabling oil and gas companies, major banks, and large corporations to achieve significant profit increases amidst an economic downturn.

A Major Issue with the Liberal Democrats' School Meal Strategy

Insight by Matthew Thompson, Political Reporter

The Liberal Democrat's stance on providing free school meals is notably striking. It's also a smart political move, given that surveys have repeatedly indicated public backing for this issue ever since it gained prominence during the pandemic.

However, there's a catch. It isn't technically a policy.

It appears to be a partial truth. Despite what the headline suggests, the Liberal Democrats are not currently advocating for universal free school meals at the primary level. They are interested in implementing such a policy, but only when the economic conditions are more favorable, a rather vague pledge indeed.

In their defense, the Liberal Democrats claim they have a fully financed plan to provide free school meals to 900,000 impoverished children, which would be implemented right away if they were to come into power.

However, this approach also presents challenges. The party plans to generate £1.4 billion through a new tax on share buybacks to fund the initiative.

Leading tax specialists, such as those from Tax Policy Associates, view the idea as overly optimistic. Essentially, if buybacks are taxed, companies might opt to compensate their shareholders through alternative routes, such as issuing dividends. Therefore, a tax on share buybacks might end up generating minimal revenue.

I asked Sir Ed Davey about this, and he explained that today’s declaration reflects anticipated shifts in corporate behavior, specifically regarding fewer share buybacks. Consequently, he noted, their revenue forecast has been adjusted downward from £2.3 billion to £1.4 billion.

Many analysts could be skeptical about this, yet it seems the Lib Dem chief would prefer to engage in a complex debate over tax income if it keeps his key policy in the spotlight.

However, specialists from the Tax Payers Alliance have raised doubts about the potential revenue from a tax on these kinds of profits, noting that companies might opt to compensate shareholders through alternative routes, such as issuing dividends.

Sir Ed mentioned that adjustments were made in the financial estimates of the policy to account for potential changes in company behavior. He explained to journalists, "In reality, it could have generated £2.2 billion last year. However, we are projecting a lower figure of £1.4 billion, considering that companies might alter their practices."

Earlier, when the party made its promise, Mr. Davey stated, "All over the nation, I'm told devastating tales of children arriving at school with nothing in their lunchboxes because their parents can't afford the simplest expenses.

"Conservative Members of Parliament ought to feel deeply ashamed."

He stated: "I take pride in the fact that the Liberal Democrats offer the most comprehensive free school meals initiative compared to any other party, a plan that would not only save parents money but also revolutionize the lives of millions of children."

The declaration might compel Sir Keir Starmer to propose something alike, as numerous members within his party are eager for such a move.

Universal free school meals have been implemented in London, and expanding this program was a key component of Sadiq Khan's campaign, which led to his unprecedented third term win as the Labour mayor of the city.

The national strategy of the Labour Party aims to guarantee that every primary school student in England can attend breakfast clubs at no cost, though this does not extend to lunches.

Several Labour MPs have advocated for the nationwide implementation of complimentary meals, a proposal that was included in the party's 2019 manifesto.

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Under existing regulations, students in England receive complimentary school meals until the conclusion of Year 2, after which they are only eligible if their families qualify for specific benefits. Poverty advocates have consistently raised concerns that numerous children who require assistance are being overlooked.

In 2022, a study conducted by PWC revealed that investing £1 in complimentary school meals for underprivileged children yields a return of £1.38. This benefit is derived from enhancements in the health, education, and future employment prospects of these children.

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The study indicated that implementing a program for complimentary school lunches might potentially contribute as much as £41.3 billion to the economy over a two-decade period.

The Conservative stance is that free school meals ought to be selectively provided to those who are most in need.

Officials report that currently, more than one-third of students in England benefit from free school meals in educational institutions, a significant increase from one in six students in 2010.

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