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IPPR lays out a fair and growth-focused tax-plan
that closes the fiscal gap and protects working
people
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Tax those with unfair advantages and profits before
working households, think tank argues
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Addressing inefficiencies in the tax system and
doubling fiscal headroom to £20 billion will boost
investment
The chancellor should use this month's Budget to set out a fair
and credible plan for closing the fiscal gap – one that protects
public services and supports stronger economic growth – according
to the Institute for Public Policy Research (IPPR).
With the Office for Budget Responsibility (OBR) expected to
confirm a fiscal shortfall, IPPR warns that deep spending cuts or
higher borrowing would be both economically risky and politically
unsustainable. This leaves one realistic option: taxes will need
to rise.
Higher taxes are rarely popular, so the government must pick the
right fights: targeting unfair tax advantages for those with
large amounts of wealth and unfair profits before asking working
households to contribute more. In doing so, it can deliver a
fairer budget that leaves us with a better tax system. A popular
budget is also a more credible budget that will strengthen
confidence in the UK's finances.
IPPR recommends increasing fiscal headroom by around £10
billion to provide a buffer against shocks and
strengthen market confidence. Structural fiscal reforms, such as
reviewing the triple lock on pensions, would further demonstrate
that the government is serious about disciplined
finances.
Taxes should rise in line with measures to improve the system,
for instance, by ending arbitrary tax breaks for certain types of
income and reforming our Byzantine property tax set up.
IPPR's proposed package includes:
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Reform property taxation so that owners
of the highest-value homes contribute more – raising bands F–H
to raise £3.9 billion and cut council tax for four in five
households.
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Reform capital gains tax to cut rates for most
people, while raising £12-16 billion by closing loopholes that
allow income from wealth to be taxed more lightly than earnings
from work.
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Levying National Insurance Contributions on landlords
and partnerships, who are currently exempt without any
economic rationale.
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Targeting unfair profits, including through
reforms to gambling tax and addressing losses from the Bank of
England's quantitative easing programme.
IPPR warns that if the OBR's forecast reveals a
larger-than-expected fiscal gap, the chancellor may also need
broader-based measures – to follow only once wealth and windfall
taxes have been exhausted. Options include:
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Extending the freeze on income tax thresholds,
raising additional revenue without increasing headline
rates.
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Taking first steps to fold National Insurance into
income taxation to ensure income is taxed consistently
across the economy.
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Raising income tax rates to avoid
damaging cuts to essential services.
Part of the revenue raised should also be used to lower the cost
of living, with an attention grabbing “war on bills” agenda,
including cutting council tax for four in five households and
reducing energy bills. This would also involve picking fights
with corporations that are demonstrably reaping unfair profits,
raising bills for consumers. This will help demonstrate that
higher contributions deliver real benefits that people can
feel.
Carsten Jung, associate director for economic policy and
AI, said:
“This Budget must show that the government is picking the
right fights by taxing those who currently have arbitrary and
unfair tax advantages. Doing so can level the playing field, and
boost efficiency and growth.
“The Budget must also demonstrate that the government can
bring real, tangible change. It should launch ‘a war on bills' –
a relentless campaign to lower the cost of living, picking fights
on behalf of working people. This should start with energy, food
and council tax. Together with repairing public services, this
budget can be living proof that the government is on people's
side.”
ENDS
Carsten Jung, the paper's author, Rachael Henry, head of advocacy
and the paper's co-author, and Harry Quilter Pinner, executive
director, are available for
interview
NOTES TO EDITORS
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1. Persuasion UK is a non-partisan, not-for-profit research
initiative which aims to understand what's shaping public opinion
on the issues that define British politics. We also study the way
electoral battlegrounds are changing. https://persuasionuk.org
