A left-wing think tank is advocating for a reform of the United Kingdom's tax system, proposing increased taxation on older generations to bolster public finances. The Institute for Public Policy Research (IPPR) argues that the current system is "heavily tilted towards taxing work and younger earners."
The report's findings come as Chancellor John Healey prepares for his first budget, facing mounting spending pressures. Prime Minister Andy Burnham has not ruled out the possibility of a wealth tax, a concept the IPPR report explores.
Proposed Tax Reforms
The IPPR suggests replacing council tax and stamp duty with a proportional property tax set at an annual rate of 0.65 percent. This change could significantly impact homeowners in certain affluent areas.
Another recommendation is to increase capital gains tax to match income tax rates, a move previously described by Defence Secretary Wes Streeting as "a wealth tax that works."
The report also proposes extending national insurance contributions to employees above the state pension age. This would address what the IPPR describes as a "striking" disparity in tax rates between older workers and younger graduates. For instance, individuals over the retirement age earning £45,000, £70,000, or £105,000 face tax rates of 20 percent, 40 percent, and 60 percent, respectively. In contrast, a younger graduate repaying student loans and paying employee national insurance would face significantly higher rates.
Demographic and Financial Pressures
The IPPR highlights the demographic shift in the UK, with the proportion of the population over 65 projected to rise from 18 percent in 2024 to 27 percent by 2075. This aging population is expected to create substantial spending pressures on health and social care, which the report argues will overshadow other costs such as defense spending and the Net Zero transition.
Professor Ben Ansell of Oxford University, the report's author, stated that aging will be the "biggest source of pressure on the public finances." He added that the current tax system has increasingly shifted responsibility to younger workers while benefiting those who have accumulated wealth through property and assets. Ansell calls for a "new fiscal contract" that raises necessary revenue, shifts the burden from work to wealth and property, and is transparent with the public about who pays and why.
The report emerges amid speculation that the government may increase taxes in the upcoming budget. Capital Economics has predicted potential tax hikes of up to £25 billion. The Chancellor needs to allocate an additional £5 billion for defense, cover cost-of-living announcements made by Mr. Burnham, fund social care overhauls, and support a major council house building program. Prime Minister Burnham has acknowledged the challenging financial position of Britain, stating that he "won't be unrealistic" about public finances.
Economists estimate that the government's budget "headroom" has significantly decreased, falling from £24 billion in the Spring Statement to an estimated £8 billion, partly due to rising borrowing costs influenced by international conflicts. The Resolution Foundation think tank supports this assessment.