The report proposes that the UK should lower taxes on an individual’s work to aid the post-COVID economic recovery and reward effort and enterprise. At the same time, the UK should increase taxes on an individual’s wealth to some extent to offset in part the losses in revenue from lowering taxes on work, as well as respond to rising wealth levels and the increasing role of luck and inheritance in life outcomes.
Tax is an incredibly politically sensitive policy area. The Treasury is inherently conservative in changing taxation policy. To do what we propose around work and wealth taxation, there will be difficult and potentially unpopular decisions along the way. But the long-term reward would be a tax system that makes the UK more efficient and equitable.
A centre-right Government that is committed to ‘levelling up’ the UK should rebalance the tax system from income associated with work and effort and onto income associated with privilege and luck.
Today, Bright Blue has published a new report Rightfully Rewarded: Reforming taxes on work and wealth. It is the third report from our cross-party, cross-sectoral Tax Commission. The report has been covered by The Guardian and BBC News.
The report is guided by two key principles. First, that the UK should lower taxes on an individual’s work to aid post-COVID economic growth and reward effort and enterprise. Second, that the UK should increase taxes on an individual’s wealth to some extent to offset in part the losses in revenue from lowering taxes on work, as well as respond to rising wealth levels and the increasing role of luck and inheritance in life outcomes.
The report proposes several recommendations to rebalance the UK tax system, suggesting reforms to the new Health and Social Care (HSC) levy, Capital Gains Tax and Inheritance tax:
Taxes on work
- The Government should prioritise significantly lowering the rate of the employer element of the HSC Levy from 1.25% on income above the existing employer NICs threshold as soon as possible. Then, if the public finances allow, the rate of employers NICs should then also be cut.
- The Health and Social Care Levy should be broadened to apply to pensions and rental income.
- End the exemption from Class 1, 2 and 4 National Insurance Contributions (NICs) for those working above the State Pension Age (SPA).
Taxes on wealth
- The Government should narrow the gap in headline rates between Capital Gains Tax and Income Tax, by creating two main rates for all capital gains of 18% at the basic rate and 28% at the higher rate, with modifications only for assets that have already paid Corporation Tax.
- The Government should end the CGT base cost uplift on death, meaning CGT liability will be assessed on the uplift in the value of assets from when they were acquired rather than their present value.
- Replace Inheritance Tax with a Lifetime Receipts Tax (LRT). The LRT should have a starting lifetime allowance of £125,700.
- Business Property Relief and Agricultural Property Relief in IHT, or the new LRT, should only apply where the donor had a significant working relationship with the business or farm and for at least two years after acquisition.
- Inflation indexation on Capital Gains Tax liabilities should be reintroduced.
- Capital losses should be able to be carried back for up to three years and set against taxable income with relief restricted to CGT rates.
You can read the report here.