Tax share buybacks at 4 percent

Policy baseline

Party costings claim GBP 1.42bn from a 4 percent buyback tax. Companies can substitute dividends or alter capital structure.

• Targets FTSE 100 buybacks.
• Pension funds and shareholders may bear costs.
• Avoidance and substitution are likely.

Core trade-offs

The direct beneficiaries are the exchequer and possibly reinvestment. The costs fall mainly on shareholders and affected listed firms. The main economic question is firms may switch to dividends instead.

• The exchequer and possibly reinvestment gain most directly.
• Costs fall mainly on shareholders and affected listed firms.
• Key risk: firms may switch to dividends instead.

Fiscal impact by 2028-29

-GBP 2.0bn to -GBP 0.1bn. Central estimate: -GBP 1.0bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Little direct job effect; sector-specific taxes can reduce hiring in affected industries.
• Wages: Legal taxpayers may shift costs to workers, owners or consumers over time.
• Prices: Some pass-through likely where market power or fixed demand exists.
• GDP / productivity: Usually mildly negative before spending use; stronger if investment or mobility responses rise.

Assessment

This is a real trade-off, not a free gain. The exchequer and possibly reinvestment benefit, while shareholders and affected listed firms bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Behavioural response: Avoidance, timing and relocation can reduce receipts.
• Incidence uncertainty: Legal taxpayers may shift costs to workers, consumers or investors.
• Investment risk: Higher taxes can reduce investment where returns are mobile.

Safeguards

• Use HMRC microsimulation before legislating.
• Close avoidance routes before rate rises.
• Review receipts and investment annually.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for tax share buybacks at 4 percent Internal - PolicyLens, 2026
• Funding a Fair Deal: Liberal Democrat Manifesto Costings Party costing - Liberal Democrats, 2024
• Tax by Design Academic review - Mirrlees and review team, Institute for Fiscal Studies, 2011
• The Elasticity of Taxable Income with Respect to Marginal Tax Rates Academic article - Saez, Slemrod and Giertz, Journal of Economic Literature, 2012
• For a Fair Deal: Liberal Democrat Manifesto 2024 Party policy source - Liberal Democrats, 2024

Other Liberal Democrats policies

• Introduce free personal care
• Raise Carer’s Allowance by GBP 20
• Create a Carer’s Minimum Wage
• Scrap two-child and benefit caps
• Recruit 8,000 more GPs
• Guarantee urgent NHS dentist access
• Put counsellors in schools
• Extend free school meals