wealth taxes and subsidies could raise almost £7bn a year by 2022-23 – and provide a down payment on covering the £36bn a year increase in the cost of public services by 2030 – the Resolution Foundation says today (Thursday) in a new briefing note.
The Foundation says that while the first three months of this year will inevitably be dominated by Brexit, the last three months of 2019 are likely to be dominated by the Spending Review, as the Chancellor sets out his spending priorities for the remainder of the parliament.
One of the biggest challenges for this and future spending reviews, the Foundation says, is how to fund the rising cost of public service provision as the population ages.
It notes that this demographic headwind and 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. 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 briefing note says that with Britain’s record £13 trillion 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.
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.
John McDonnell MP, Labour’s Shadow Chancellor, commenting on the report said:
“Today’s report from the Resolution Foundation is a much-needed debate on tax reform.
“Labour is committed to conducting a review of tax reliefs in government and we consistently call for Entrepreneurs Relief to be reviewed and evaluated against its effectiveness. We have also produced a Tax Transparency and Enforcement Programme that will close loopholes and flush out tax avoiders and evaders from the system.