UK shadow chancellor (finance minister) Rachel Reeves says she will not introduce a levy to target wealth or expensive properties, and will not increase capital gains tax or the top rate of income tax. Supposedly a bid for the centre ground.
That is remarkably short sighted.
My own calculations suggest that with such changes there would be high exchequer benefits with little or no pain for most people.
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1) A progressive income tax, with a negative rate for incomes below £15k would mean everyone under £50k would be better off. Up to £90k there would be a small hit. Above that the impact becomes considerable. It would raise an additional £20Bn per year.
2) That's before you equalise the rates for dividends, which would increase the revenue further.
3) But it's unequal wealth that most needs targetting.
Capital Gains tax. Current rates are 10% (or 18% on residential property) for basic rate band and 20% (or 28% on residential property) above the basic tax rate. That could be raised to a flat 28% at the lower band and 40% (same as current higher rate income tax) for the higher band & same for residential and other assets. A rough calculation indicates that would raise some £40Bn p.a. (current CGT revenue ~ £17.8Bn for this year).
4) Unrealised assets. People sitting on large assets do not pay tax on them but wait until a good time to sell. Such large holdings could be taxed at an annual rate.
5) Land value tax: A fair and progressive land tax could be instituted, proportionate to the returns from land. That would target owners of multiple properties and big land holdings and also disincentivise land banking / speculation, thereby reducing housing costs and cost of agricultural land.
6) Council tax. There is a need to re-band the UK property stock.
7) Business rates: these are punitive for small businesses but not for larger ones. There could be a generous zero rate band and then a steeply rising rate for larger enterprises.
8) Corporation tax. From 1 April 2023 the Corporation Tax rate changes to:
• 19% for taxable profits below £50,000 (small profit rate)
• 25% for taxable profits above £250,000 (main rate)
Marginal Relief provides a gradual increase in Corporation Tax rate between the small profits rate and the main rate.
The lower rate could be increased to the level in Belgium, Netherlands, France, Spain and Turkey (around 25%) and the higher rate also increased to, say, 30%.
9) Currently, goods and services are subject to Value Added Tax. While food and a number of basic necessities like children’s clothes are zero rated, the tax is regressive, with poor people paying a larger proportion of their income in VAT than richer people.
A better approach to raising revenue while reducing unnecessary, damaging consumption would be as follows:
Tax goods and services according to their carbon and water footprint. This could be done via a number of bands and goods types.
10) In 2022 the government decided not to pursue a carbon tax.
Currently there are relevant taxes on fuel duty (£23Bn, frozen for decades), vehicle excise (£8.1Bn) and air passenger duty (£3.8Bn). These are currently set too low to offer a sufficient disincentive on dirty products and services.
Note that as ICE motors and air travel decrease (trust me on that), these revenues would decrease.
11) And collect the taxes!
Wealthy people notoriously find a number of ways to avoid (and evade) payment of tax. Emphasis should be placed on reducing the number of legal options for avoiding tax and on catching those evading payment. The latter should focus on wealthy people rather than on poorer people struggling to make ends meet.