The welfare reforms included in Rachel Reeves’ spring statement have caused anguish among disabled people, charities and the Labour Party. But she believes that Britain’s economic recovery depends on reassuring businesses and the financial markets of the stability of the UK economy. And to do this she intends to keep to the fiscal rules whch she set herself, and the promise not to increase income tax, national insurance or VAT. So, when pressures on public spending rise, notably for health and defence, she sees her only solution as cutting welfare expenditure. Not everyone agrees.
Some people have suggested that a better solution would be a wealth tax, reflecting the vast difference betwen tax on work and tax on savings, which has led to huge inequality. But introducing a wealth tax would take time, and not be easy to operate. Many countries which have tried them have later changed their minds. But there are alternatives. Last year Professor Richard Murphy, one of our regular contributors on economic issues, published his Taxing Wealth Report 2024, which made proposals for tax reform. He identified some 30 simple changes to the tax system. Just one of them could raise the sums that she needs without breaking Labour’s promises. So we are republishing our summary.
Thirty simple changes
The Taxing Wealth Report shows that by making up to 30 relatively simple changes to existing UK taxes, up to £90bn of new tax revenue could be raised a year. That is equivalent to half the health and social care budget, and more than any other government department spends.
The money would come entirely from those who are well off, or who are straightforwardly wealthy. Only those in the top 10% of income earners should be affected.
There are thirty suggestions, but there are six which might be the first to tackle.
1. Taxing capital gains at the same rate as income tax would raise £12bn of extra tax per annum.
2. Restricting the rate of tax relief on pensions to the basic rate of income tax, whatever tax rate a person pays, would raise £14.5bn of extra tax per annum.
3. Charging VAT on the supply of financial services, which are inevitably consumed by the best off, could raise £8.7bn of extra tax per annum.
4. Charging an investment income surcharge of 15% on income earned from interest, dividends, rents, and other sources, might raise £18bn of extra tax per annum. Lower rates could, of course, be charged. This estimate assumes no such charge on the first £5,000 of such income a year, with a higher allowance for pensioners.
5. Charging national insurance at the same rate on all earned income, whatever its amount above the existing minimum, might raise up to £12.5bn of extra tax per annum.
6. Investing £1bn in HMRC so that it might collect all tax owing by the UK’s 5m or so companies when 30% of that sum goes unpaid at present, might raise £12bn per annum.
Further measures
In addition, the report suggests that if the tax incentives for saving in ISAs and pensions were changed so that all new ISA funds and 25% of all new pension contributions were required to be saved in ways that might help fund new infrastructure projects in the UK, including those linked to climate change, then up to £100bn of funds might be made available for that purpose a year.
In 2024 many people feared that Labour might form a new government, but would not change anything because of their commitment to harsh fiscal rules that appear to promise more austerity. The spring statement has confirmed those fears. But the Taxing Wealth Report 2024 shows that this austerity is not necessary. The existing tax system only needs to be made a bit fairer and the funding required to transform our society would be available.
Summary of the proposals
The tax and savings impacts of the recommendations made in the Taxing Wealth Report 2024 are as follows:
Access the report
These changes are all explained in detail in The Taxing Wealth Report 2024, which is available in several forms/lengths. They include a summary, and the full report.
More from East Anglia Bylines
