Reforming Britain’s wealth taxes could help the Government raise £7bn a year by 2022-23 to help cover the cost of public services, a think tank has argued.
A new briefing note from the Resolution Foundation claims that reforming five wealth taxes will help meet an estimated £36bn a year increase in the cost of public services by 2030.
The think tank recommends that England replicate Scottish council tax reforms, including increasing the rate paid in the top bands and cutting that paid in the lower bands.
This could raise £1.4bn a year, the think tank’s researchers calculated.
The briefing note also recommends that the Government freeze the inheritance tax threshold after 2020 and clamp down on inheritance tax loopholes. This would raise £500m a year.
The super-rich could be prevented from avoiding inheritance tax with the introduction of a ‘farmer test’ and by increasing minimum ownership periods for agricultural and business property reliefs, according to the think tank.
Britain has a record £13tn of wealth undertaxed relative to the size of its economy, says the Resolution Foundation
They argue a ‘wider debate’ about the role of wealth taxes is needed, particularly as the ageing population is set to increase the cost of the welfare state by £36bn a year by 2030 and by £83bn by 2040.
As well as reforming council and inheritance tax, the Resolution Foundation recommends making pension taxation more progressive by capping the tax-free lump sum at £40,000. This would raise £2bn a year, they say. The briefing note also recommends limiting entrepreneurs’ relief and scrapping former chancellor George Osborne’s ISAs.
‘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,’ said Torsten Bell, director of the Resolution Foundation
‘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.’
Adam Corlett, senior economic analyst at the Resolution Foundation, said: ‘Britain’s wealth is undertaxed, and the wealth taxes we do have are in serious need of reform.
‘There’s a strong case for scrapping council tax and inheritance tax altogether, and replacing them with proper wealth taxes that are more progressive and harder to avoid.
‘The chancellor can make small steps in this direction by tightening up five of our existing wealth taxes and subsidies – raising almost £7bn in the process.’