Think Tank Urges UK Government to Increase Taxes in Overhaul to Fund Public Services
A leading think tank, the Institute for Fiscal Studies (IFS), has called on the UK government to raise taxes on the self-employed, homeowners, and capital gains. The proposed overhaul aims to generate additional funding for public services and welfare. According to the IFS, British tax revenues are currently at their highest level since the 1940s, with employees bearing a larger burden on their incomes while business ownership and wealth have been relatively less taxed.
Helen Miller, the deputy director of the IFS, emphasized the potential benefits of better-designed taxes, stating that they could enhance productivity and ultimately lead to increased prosperity. She also highlighted the need for fairness in taxation, suggesting that similar individuals should not be subject to significantly different tax measures.
Prime Minister Rishi Sunak and Finance Minister Jeremy Hunt are facing pressure from some Conservative Party lawmakers to reduce taxes ahead of an anticipated election next year. However, the government is already close to breaching its fiscal rules, and the financial strain caused by an aging population is expected to worsen in the coming decades.
Despite the relatively high tax take of 33.5% of gross domestic product in 2021, the UK lags behind other major Western European countries, where tax revenues make up around 40% of GDP, according to figures from the Organization for Economic Cooperation and Development (OECD).
The IFS report outlined several areas where tax reform is needed. It pointed out that lower tax rates on income generated from capital, in comparison to those on employment, are distorting the labor market by encouraging self-employment. Additionally, individuals with similar earnings face different tax bills due to this disparity. The report also criticized the lower taxes on wealth and the exempted capital gains tax on the sale of people’s primary residences, which create an intergenerational divide. Furthermore, the IFS noted that local property taxes are based on outdated valuations from 30 years ago.
The think tank also highlighted flaws in corporate taxes, stating that uncertainty surrounding investment incentives hampers the already weak levels of business investment. Varying tax rates on greenhouse gas emissions were also noted as a factor that makes reducing emissions more costly than necessary.
The IFS report concluded by emphasizing that better-designed taxes could bring substantial benefits, including supporting higher economic growth and facilitating the transition to net zero emissions. It called for taxes to be seen as part of the solution to future challenges rather than contributing to the problem.
As the government faces calls to cut taxes, the IFS report provides a counterargument, highlighting the need for an overhaul to ensure fairness and sustainably fund public services. With the UK facing economic challenges, tax reform could be a crucial step in achieving long-term fiscal stability and addressing pressing social and environmental issues.
More detail via Reuters here… ( Image via Reuters )