Ahead of December 5th’s Autumn Statement, we have suggested £17 billion of revenue-raising measures for the coalition parties to consider. Our proposals offer ways to narrow the deficit with as little pain as possible, and further measures to unlock growth.
These include what might be called “wealth taxes” – those on property, inheritance, and financial assets. One of our key themes is that substantial revenue can be raised simply by ending wealth and income tax breaks. Spending cuts should therefore include cuts to ‘tax expenditures’. Many of the measures below would make the tax system simpler, fairer and more efficient at the same time as raising revenue.
We suggest that regressive tax breaks for pensioners should be limited to those who need them. There are large inequalities in pension wealth, and while tax breaks promoting pension saving perform a useful function in society, there are limits to this utility. The £1.5m pension pot limit for tax breaks remains – at ten times the average retirement pot – excessive. We also propose making universal pensioner benefits taxable; a change compatible with the coalition agreement and Conservative manifesto.
Our recommendations include reforms for capital gains and inherited wealth. The coalition agreement commits the government to “seek ways of taxing non-business capital gains at rates similar or close to those applied to income” and more must be done. Why, for example, do we have an additional (45p) rate of income tax but no equivalent for CGT?
This government has made frustratingly little progress on property taxation. Instead of radical reform of council tax, business rates and stamp duty, we have seen central control, real tax cuts for those in the most expensive properties, and reductions in council tax benefit. If there is no chance of reform – even a mansion tax or independent review! – limited changes would include adding new council tax bands, and ending the freeze for those in the top bands.
One area where small welfare savings could easily and fairly be made is Statutory Maternity Pay. For the first 6 weeks after birth, the government covers 90% of a mother’s normal wages. This is completely uncapped, but should now be limited to the equivalent of £41,450 per year – the level at which higher rate tax begins.
There are also opportunities to reduce CO2 emissions, improve health and save drivers money at the same time as closing the deficit. As hinted at in Ed Davey’s conference speech, vehicle excise duty must be reformed. Amidst the debate on fuel duty, we should also look at the much lower rates paid on ‘red diesel’, a £2.4bn fuel subsidy for agricultural and other vehicles.
We must tear down unnecessary red tape and wrong-headed obstacles to growth. Higher education is one of the UK’s most successful ‘exports’ and the student immigration system must recognise this. Alongside this, we call again for a postgraduate loan system for UK students. We also hope the coalition will remove the barriers to meeting the Lib Dem goal of 300,000 new homes per year. Councils and residents must be given strong incentives to support developments, while the government should underwrite low-cost borrowing for housing associations.
Reducing the deficit without hammering the poor; reforming our complex and unfair tax system; and boosting growth. These are problems that are not going to be solved overnight, but December 5th would be a good place to start.
* Adam Corlett is a party member and an economic analyst at the Resolution Foundation. He writes here in a personal capacity.