Philip Hammond could raise an additional £7bn a year for the Treasury by scrapping tax breaks for the richest in society and tightening up existing wealth taxes, research from one of Britain’s leading thinktanks shows.
In a report prepared ahead of the chancellor’s government spending review, which is due later this year, the Resolution Foundation said that the additional funds could be raised to help finance the higher spending on public services needed to meet the demand of Britain’s ageing population.
It comes after Hammond used the autumn budget to declare that austerity would end after almost a decade of government cuts under the Conservatives, with a pledge that the spending review would raise departmental spending by an average of 1.2% a year in real terms over the five years from 2021.
Designed to set spending allocations for Whitehall departments, from prisons to transport and education, the outcome of the review is expected to be unveiled with the autumn budget this year.
Wider health cost pressures are set to raise the price tag of the welfare state by £36bn a year by 2030 and £83bn by 2040, even if the current level of support is only maintained rather than increased. The Resolution Foundation warned that, should the government opt to fund the increase through income taxes, the basic rate of income tax would need to rise from 20p in the £1 to 39p.
It said that simple tweaks to wealth taxes could be used instead as a “down payment” to share the burden more equitably, at a time when total wealth in Britain has risen to a record £12.8tn, more than seven times the size of the UK economy.
Options include limiting entrepreneurs’ relief to save £1.6bn a year and implementing changes to council tax in England that have already been made in Scotland – including increases in the top bands – to raise £1.4bn a year.
Clamping down on inheritance tax loopholes, a change to pensions tax relief to cap the tax-free lump sum, and scrapping Help to Buy and lifetime ISAs could also help boost the government’s coffers, it said.
Torsten Bell, director of the Resolution Foundation, said: “Yes, this is politically difficult, but the good news is that relatively large sums can be raised simply by tightening up our existing wealth taxes and subsidies. That is how we protect our public services without placing all the burden of taxation on hard-earned income from work.”