Long time readers of International Adviser will know that I periodically like to get up on my soapbox and lament something in the industry (or world at large).
On more than one occasion, the subject of a wealth tax has cropped up.
In October, I looked at whether it was time to stop calling for one given that the Conservative government was highly unlikely to impose additional levies on the rich (and powerful).
There is also the argument that post-Brexit Britain needs to be an attractive destination for international companies and businesspeople, and taxing wealth will see them opt for friendlier climes.
But those points are quickly being dwarfed by the ballooning UK debt pile, which is set to hit £76bn a year by the end of the decade, according to the Resolution Foundation.
“A new approach will be needed to manage these extra costs as previous approaches of shrinking defence spending and raising National Insurance are likely to run out of road,” the independent think tank said.
Unwise, toxic or undesirable
The Resolution Foundation report adds that the UK also faces fresh spending pressure, during the 2020s, from its net zero transition, where the additional public investment required may cost around £14bn a year by 2030.
The fiscal impact of the net zero transition will also be seen in lost tax revenues. It estimates that electric vehicle adoption will result in an £8bn reduction in the fuel duty take.
The report warns that simply repeating the strategies of the past to manage the £76bn fiscal headwind would be:
- Unwise – such as cutting investment spending at a time when the net zero transition must be accelerated,
- Politically toxic – such as ending the NHS’ free at the point of use principle; or,
- Undesirable – such as further NI increases.
It adds that the pattern of further tax rises falling disproportionately on pay packets via National Insurance, as is the case with the recent Health and Social Care Levy, cannot be repeated.
Governments overseeing a higher tax take should refocus on ensuring that tax is collected efficiently and fairly, including by exploring Britain’s booming, but under-taxed, level of household wealth, which has grown from three times national income in the early 1980s to almost eight times national income today, the report added.
Better taxing wealth
Dan Tomlinson, senior economist at the Resolution Foundation, said: “The swift demographic change that Britain will experience in the 2020s alongside rising health costs is set to increase public spending by £76bn a year. We’ll all benefit from people living longer, healthier lives – as well as reducing our carbon footprint – but it will have to be paid for.
“Over the past seven decades we’ve expanded the NHS, the state pension and education spending, and managed those costs by shrinking the army and growing the size of the state on the back of higher National Insurance contributions.
“But we’re unlikely to be able to simply repeat that approach in future. We’ll need to tax income more efficiently and fairly, and find new sources of tax revenue such as from better taxing wealth.
“The recent row over the £13bn health and social care levy – and the unsatisfactory answer of raising National Insurance contributions yet again – is small fry compared to some of the tax raising decisions that may be required later in the 2020s. When it comes to tax, more of the same is not the answer.”
Given that the Tories have announced and doubled down on plans to introduce the deeply unpopular health and social care levy – it might pave the way for them to adopt other, less popular measures.