The Institute for Public Policy Research (IPPR) has proposed a wealth tax targeting older individuals to enhance public finances. The think tank argues that the current tax system favors work and younger earners, suggesting reforms as Chancellor John Healey prepares for his first Budget in October amid increasing spending pressures.
The report recommends replacing council tax and stamp duty with a proportional property tax set at an annual rate of 0.65 percent, acknowledging potential winners and losers among homeowners in affluent areas. Additionally, it supports raising the capital gains tax rate to match income tax rates, a move described by Defence Secretary Wes Streeting as a 'wealth tax that works.'
Another suggestion includes extending national insurance contributions to employees over the state pension age, addressing disparities between older workers and younger graduates. The report notes that older individuals earning £45,000, £70,000, or £105,000 currently face tax rates of 20 percent, 40 percent, and 60 percent, respectively, while younger graduates repaying student loans and paying national insurance would face rates of 37 percent, 51 percent, and 71 percent.
The IPPR emphasizes the need for reform as the population ages, predicting that the proportion of individuals over 65 will rise from 18 percent in 2024 to 27 percent by 2075, leading to significant spending pressures from health and social care costs.
Ben Ansell, the report's author from Oxford University, stated, 'Ageing is going to become by far the biggest source of pressure on the public finances.' He criticized the current tax system for shifting the burden towards younger workers while protecting those who have benefited from rising property and asset wealth.
The report arrives as speculation grows regarding potential tax increases in the upcoming Budget, with Capital Economics predicting a rise of up to £25 billion. Chancellor Healey is tasked with finding an additional £5 billion for defense and addressing various cost-of-living initiatives, social care reforms, and a significant council house building program. Prime Minister Andy Burnham acknowledged the challenging state of public finances, indicating that tax increases may be necessary.
Economists have noted a sharp reduction in the Government's Budget 'headroom,' estimating it has fallen from £24 billion during the Spring Statement to £8 billion, exacerbated by rising borrowing costs linked to the Iran war.