The rich are not paying enough tax and the government should raise wealth taxes and scrap saving subsidies, argues a leading think-tank.
Chancellor of the Exchequer Phillip Hammond could easily raise an extra £7 billion towards the spiralling welfare costs, says the report from the Resolution Foundation.
The foundation predicts welfare costs will rise by £36 billion a year by 2030 and by £83 billion by 2040 due to an aging population and that funding the rise from income tax is impractical.
But Britain’s £13 trillion of stored wealth is lightly taxed and the wealthy could contribute more to the welfare pot.
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.
Taxes under scrutiny
“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.”
Five taxes are earmarked for change –
- Capping entrepreneur’s relief paid to business sellers as threequarters of the relief is claimed by just 5,000 people
- Replacing council tax with property tax that would raise more from larger homes
- Tighten up inheritance tax loopholes that stop exploitation of reliefs for agricultural and business premises
- Capping the tax-free lump sum paid by pensions at £40,000 instead of leaving the payment open-ended at 25% of the value of a pension pot
- Abolishing ISAs and the savings reliefs that go with them
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.”