A report by the left-wing Institute for Public Policy Research (IPPR) in the United Kingdom is urging a reform of the tax system, suggesting that older generations and wealth should bear a greater share of the tax burden to support public finances. The IPPR argues that the current system is "heavily tilted towards taxing work and younger earners."
The proposals come as UK Chancellor John Healey prepares for his first budget in October, facing increasing spending demands. Prime Minister Andy Burnham has also not ruled out the possibility of a wealth tax.
The report suggests replacing council tax and stamp duty with a proportional property tax set at an annual rate of 0.65 percent. This reform, the IPPR acknowledges, would lead to varied impacts, potentially affecting homeowners in affluent areas significantly.
Another recommendation is to increase the rate of capital gains tax to match income tax rates, a move previously supported by Defence Secretary Wes Streeting as a "wealth tax that works."
Furthermore, the IPPR proposes extending National Insurance contributions to employees above the state pension age. This would address a disparity highlighted in the report, where older workers and younger graduates face different tax burdens. For instance, individuals over the state pension age earning £45,000, £70,000, or £105,000 face income tax rates of 20, 40, and 60 percent respectively. In contrast, a younger graduate repaying student loans and paying employee National Insurance might face rates of 37, 51, and 71 percent on similar earnings.
The IPPR emphasizes that these changes are necessary due to an aging population, with the proportion of individuals over 65 projected to increase from 18 percent in 2024 to 27 percent by 2075. This demographic shift is expected to create substantial spending pressures, particularly in health and social care, which the report argues will outweigh other fiscal demands like defense spending and the Net Zero transition.
Ben Ansell, an Oxford University professor and the report's author, stated that aging will be the primary source of pressure on public finances. He criticized the current tax system for shifting responsibility towards younger workers while continuing to benefit those who have accumulated wealth through rising property and asset values over decades. Ansell called for a "new fiscal contract" that generates necessary revenue, shifts the tax burden from labor to wealth and property, and is transparent with the public.
The report emerges amid speculation that the UK government may increase taxes in the upcoming budget. Consultancy Capital Economics has predicted potential tax increases of up to £25 billion. The Chancellor is expected to allocate additional funds for defense, address cost-of-living measures announced by Mr. Burnham, fund social care reforms, and support a council house building program. Prime Minister Burnham has indicated that the government must be realistic about the nation's financial situation, describing it as a "challenging position."
Economists suggest that the government's budget headroom has significantly decreased, partly due to rising borrowing costs influenced by global events. The Resolution Foundation think tank estimates this headroom has fallen from £24 billion to approximately £8 billion.