Raise £7bn from wealth taxes to support higher public spending, says think tank
The Foundation argues in favour of scrapping council tax and inheritance tax, replacing them with a genuine property tax and a Lifetime Receipts Tax. However, in the short-term, tightening up five of Britain’s existing wealth taxes and subsidies – including inheritance tax, entrepreneurs’ relief and pensions tax – could raise almost £7bn a year by 2022-23.
The think-tank said this should inform the Chancellor’s plans for the Spending Review later in 2019 as he assesses how to fund the rising cost of public service provision as the population ages. The cost of the current welfare state is set to increase by £36bn a year by 2030, and by £83bn by 2040. This figure for 2040 is equivalent to almost doubling the basic rate of income tax, from 20p to 39p if funded entirely through income tax, rather than wealth taxes. The UK has around £13 trillion of wealth.
The group said entrepreneurs’ relief could be limited, with the cost of this policy rising to £3.9bn but going to a relatively small number of people. Council tax could be revamped in line with recent Scottish reforms – including increases in the top bands only, while clamping down on inheritance tax loopholes could raise over £2bn. It said that the tax-free lump sum from pensions should be capped at £40,000, while scrapping George Osborne’s ISAs, Help to Buy and Lifetime Isas, would also raise cash.
Torsten Bell, director of the Resolution Foundation, said: “Britain has unfortunately got used to weak income growth but soaring wealth, which is now worth seven times the size of our economy. It’s time our tax system caught up with that fact. Maintaining our valued public services in the face of the big cost pressures of an ageing population, requires better wealth taxation to help fund this gap.
“Yes this is politically difficult, but the good news is that relatively large sums can be raised simply by tightening up our existing wealth taxes and subsidies. That is how we protect our public services without placing all the burden of taxation on hard earned income from work.”