Lib Dems announce free school meals plan funded by buyback tax

The Lib Dems say a 4% levy on share buybacks could raise 拢1.4bn - money they want to use to fund a universal free school meal programme for primary school aged children.

Faye Brown

Political reporter

Friday 31 May 2024 16:59, UK

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The Liberal Democrats have announced plans for free school meals for all primary school children funded by a new share buyback tax.

In a policy announcement that could put pressure on Labour, the Lib Dems said the plan would begin with an immediate extension of free school meals to all 900,000 children living in poverty who currently miss out.

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The second phase would see all primary school children receiving free school meals as the public finances stabilise.

Speaking on the campaign trail today in Harpenden, Lib Dem leader Sir Ed Davey said: "Making sure children get a hot meal at lunchtime, if they're from the poorest backgrounds who are really struggling on the cost of living, it's so important. And this policy would more than pay for it."

The pledge, to be included in the party's manifesto, would be funded by a 4% levy on the share buybacks of FTSE 100 listed corporations.

This is similar to the excise tax on buybacks implemented by President Biden in the US and could raise around £1.4bn a year, the party said.

A share buyback is when companies buy back their own shares from the market to increase their price - essentially so they can return excess cash to their shareholders

The Lib Dems said the practice has allowed the profits of oil and gas giants, banks and large corporations to soar during a cost of living crisis.

One key problem with Lib Dem's school meals policy

Analysis by Matthew Thompson, political correspondent

The Lib Dem policy on free school meals is certainly eye-catching. And it鈥檚 clever politics, because it鈥檚 an issue that polls have consistently shown support for since it hit the headlines during the pandemic.

There鈥檚 just one problem. It鈥檚 not really a policy.

Or at least, it鈥檚 only half of one. In spite of the headline, the Lib Dems aren鈥檛 actually proposing a policy of free school meals in all primary schools. It鈥檚 something they鈥檇 like to do, sure. But only as soon as 鈥渢he public finances stabilise鈥�. Which is about as woolly a commitment as it comes.

To be fair, they do say they have a costed policy to offer free schools meals to 900,000 children in poverty. That would roll out immediately, under a Lib Dem government.

But there鈥檚 a problem with that, too. The party says it wants to raise 拢1.4 billion from a new share buyback tax to pay for it.

But eminent tax experts like the Tax Policy Associates say that looks ambitious. In short, taxing buybacks means companies are likely to reward shareholders via other means, like paying dividends. Meaning a share buyback tax could ultimately raise very little.

I put that to Sir Ed Davey, who told me today鈥檚 announcement 鈥渢ook account of potential changes in behaviour that companies may not buy back so many shares鈥�. He said they had reduced their estimate of revenue from 拢2.3bn to 拢1.4bn as a result.

Some experts might raise an eyebrow even at that, but I suspect the Lib Dem leader will be happy to have an obscure argument about tax revenues, so long as we are still discussing his headline policy.

But experts at the Tax Payers Alliance questioned how much money a levy on this sort of profit could raise, saying companies could simply choose to reward shareholders via other means, like paying dividends.

Sir Ed said this had been factored in when costing the policy, telling reporters: "Actually it would have collected £2.2bn last year. But we're not saying it would raise that because we've taken into account the fact that companies might change their behaviour. So we're only claiming £1.4bn."

Earlier, as the party announced the pledge, Mr Davey said: "Across the country, I hear heartbreaking stories of children going to school with empty packed lunch boxes as parents struggle to cover even the basic costs.

"Conservative MPs should hang their heads in shame."

He added: "I am proud the Liberal Democrats have the most ambitious plan for free school meals of any party, which would save parents money and transform the future for millions of children."

The announcement could put pressure on Sir Keir Starmer to make a similar offering - given this is something many of his MPs want to see.

Free school meals are already rolled out in London and a promise to extend the scheme was at the centre of Sadiq Khan's successful bid for a historic third term as the city's Labour mayor.

Labour's policy nationally is to ensure every primary school child in England has access to fully funded breakfast clubs, but not lunches.

However, a series of Labour MPs have called for the national rollout of free meals, something which was in the party's manifesto in 2019.

Under current rules, pupils in England get free school meals up to the end of Year 2 and then only if their families receive certain benefits. There have long been warnings from poverty campaigners that thousands of children in need are missing out.

In 2022, research by PWC found that every £1 spent on free school meals for the poorest children generates £1.38 in health and earnings benefits, including improvements to children's health, education and future working life opportunities.

The analysis found that a free school meals scheme could inject up to £41.3bn into the economy over 20 years.

The Tories' position is that free school meals should be targeted, going to those who most need it.

The government say that over a third of pupils in England now receive free school meals in education settings, compared with one in six in 2010.

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Lib Dems announce free school meals plan funded by buyback tax

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One key problem with Lib Dem's school meals policy