Tightening up five of Britain’s existing wealth taxes and subsidies could raise almost £7bn a year by 2022-23, while also providing a down payment on covering the £36bn a year increase in the cost of public services by 2030, the Resolution Foundation has said.
In a briefing note, the foundation conceded that the first three months of 2019 will be “dominated” by Brexit, though the final quarter of the year is likely to revolve around the Spending Review, as Chancellor Philip Hammond sets out his spending priorities for the remainder of the parliament.
The Resolution Foundation noted that one of the biggest challenges for this and future spending reviews is how to fund the rising cost of public service provision as we endure an aging population.
It highlighted that this demographic headwind, along with rising health cost pressures, are set to increase the cost of the current welfare state by £36bn a year by 2030, and by £83bn by 2040. The figure predicted for 2040 is almost double the basic rate of income tax, from 20p to 39p, if funded entirely through income tax rather than wealth taxes.
The briefing note says that with Britain’s record £13trn of wealth undertaxed relative to the size of its economy, a wider debate about the role of wealth taxes is needed. The foundation says that there is a strong case for scrapping council tax and inheritance tax altogether, and replacing them with a genuine property tax and a Lifetime Receipts Tax.
However, the foundation identified five ways in which “significant progress” can be made, even if the politics of Brexit and a governing party without a majority make wholesale reform of headline wealth taxes difficult.
The Resolution Foundation has suggested that Hammond could raise almost £7bn a year by; limiting entrepreneurs’ relief, raising £1.6bn per year; replicating recent Scottish reforms on council tax, including increases in the top bands only, raising £1.4bn; clamping down on inheritance tax loopholes, generating £1.2bn a year; making pension taxation more progressive, earning up to £2bn per year; and scrapping Osborne’s ISAs, such as the Lifetime ISA and Help to Buy ISA, which would raise £900m a year.
Commenting, Resolution Foundation director Torsten Bell: “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.”
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