If she were to raise taxes on the ever-increasing levels of wealth that has not been earned, Rachel Reeves would be able to rapidly find approximately ten billion pounds per year to plug half of the fiscal hole that the Conservatives have left behind, according to renowned economists.
According to the findings of a recent study by the Resolution Foundation, the United Kingdom is a country with “booming wealth” but “busted wealth taxes.” This leaves the chancellor of the exchequer with ample possibility to raise money that is sorely needed by increasing taxes on the wealthiest individuals.
According to the findings of the report, the levels of wealth have increased from four times the national income during the time when Labor was in power to six times the national income at the present moment. This is despite the fact that interest rates have recently increased.
A family that is in the top tenth of the wealth distribution has £1.3 million more wealth per adult than someone who is in the middle of the distribution, according to the report. Additionally, the report states that Britain is a country that has enormous “wealth gaps.”
The Resolution Foundation’s study’s general findings show that the wealth gap is roughly twice as wide as the income gap. It is mentioned that on the eve of the pandemic, three out of ten families had savings of less than one thousand pounds, which indicates that they did not have any kind of genuine safety net.
This was brought to light in a significant way during the crisis that occurred in the cost of living, when a great number of families were unable to deal with the growing prices and household bills.
According to the research, despite the fact that wealth has become more concentrated at the top of the economic hierarchy, wealth-related taxes as a percentage of national income have remained relatively low, amounting to approximately three percent of national income.
It states that key wealth taxes, most notably the inheritance tax (IHT) and the capital gains tax (CGT), are poorly designed to tax wealth and would be ready for reform in the first budget that the Labour chancellor will present this autumn. This would assist Reeves in meeting her fiscal rule of having debt decrease as a proportion of GDP in the final year of the parliament.
The analysis shows that the extremely wealthy frequently pay a low effective rate as a result of the numerous generous reliefs offered by IHT. It contends that putting an end to or putting restrictions on these will both increase fairness and raise up to two billion pounds annually.
Additionally, it contends that if the rates of taxation on capital gains were linked to the rates of taxation on income, this would lessen the incentives for affluent individuals to alter the manner in which they are compensated in order to avoid paying taxes.
For example, increasing the capital gains tax rates on shares to match the rate of tax on dividends might result in an annual increase of up to £7.5 billion.
The combination of these two actions, which will bring in £9.5 billion annually, may be of assistance to Reeves as she confronts difficult difficulties over public spending.
According to Simon Pittaway, a senior economist at the Resolution Foundation, “Britain has been riding the wave of a wealth boom for decades, and one that has only slightly deflated by the recent rise in interest rates.” This statement was made from the perspective of the Resolution Foundation.
As a direct consequence of this, wealth has expanded from four times the national income during the time when Labour was in power to six times the national income at the present moment.
Many families, however, have been unable to take advantage of this economic surge. The fact that more than one in four people believe they would not be able to cover an unexpected bill of £850 brings to light the fact that an excessive number of families do not have a fundamental financial safety net, which even moderate amounts of wealth allow them to provide.
Taxes on wealth have also failed to catch up with inflation.
It is possible that the efficiency of our tax system may be improved and vital money could be raised for the exchequer if we were to modernize our wealth taxes, eliminate leakages, and correct behavior distortions.
In a statement, Stuart Adam, a senior economist at the Institute for Fiscal Studies, stated that “it would certainly be possible for the government to raise a few billion pounds from reforms to capital gains tax and inheritance tax.”
According to him, both taxes now contain reliefs “that are difficult to justify,” such as the exemption of pension pot from inheritance tax upon the death of the pensioner beneficiary.