The tax system in the UK exacerbates age inequality and puts an increasingly unsustainable burden on Gen Z and Millennials.
A millionaire like Rishi Sunak pays an effective rate of 23% tax on his £2.2m income. And yet, someone in their late 20’s earning, say, £55,000 will pay 51% of every extra £ they earn (40% tax + 2% NI + 9% Student Loans). And we wonder why younger voters are disengaged and demographic time bombs arise.
In percentage terms, the tax burden rises, falls hardest on the struggling middle income, and then reduces, as wealth becomes sufficient to afford tax advisors. Once a level of wealth is achieved, the UK has some of the most generous tax relief schemes in the world. These need pruning.
Politics should be simple, so we should and use the existing tax framework. Calls for additional taxes such as wealth tax, a job creation scheme for tax advisors, would add huge bureaucracy.
An example of this would be removing Enterprise Investment Scheme (EIS). If a taxpayer invests in a Small or Medium Company (SME) they can write off 30% of the investment against tax. If the investment is successful, no capital gains tax is payable. If the investment fails, the taxpayer can write off the balance of the investment against tax. Heads I win, tails you lose.
For every suggestion there will be a chorus of disapproval, in this instance, fledgling companies would be starved of cash. Tax benefits have made life easy for various sectors like venture capital, you can normally identify then by their outsized lobbying machines. Here, the purpose of venture funds is to make returns for their investors through their skill in investing and support of companies, not through government backdoor subsidies.
Tax rates on the unearned income or capital gains of the wealthy are lower than the earned income, and carry no National Insurance. Levelling the rates would immediately increase in the tax take.
Restricting pension contributions to the basic tax rate would also provide targeted incremental revenue within the current legislation.
Having created inequality, the system is being manipulated to pass the advantages inter generationally. This is the core of recent issues with the farmers. The purchase of vast tracts of farmland by wealthy speculators will drive land costs up. The Labour approach is the sledgehammer, rightly causing anxiety amongst real farmers. A more subtle approach is to add a layer of intelligence. Full Inheritance Tax should be applied to speculators, but if a farmer can prove 75% of their time and 75% of their income relates to production on the farm, they have a 100% exemption. This is within the interests of the farmers, as land will become cheaper.
There is also a prevailing attitude amongst certain older groups that personal wealth is not for the needs of the individual, to provide them with support and assistance in their senior years. It is now the job of the state to provide them with all care, and wealth should be transferred tax free to the next generation. This leads to both tax planning and the use of trusts to protect such wealth from being used for care. As ever, everything is connected to everything else in politics. Social care cost is bankrupting our councils, and the increased council tax is once again paid by the Gen Z and Millennials.
To summarise, many of the mechanisms to change age inequality in the tax system exist, it just needs the courage to do what is equitable. This is the major challenge, as the equitable solution may be in conflict with the vested interests.
* Donald McIntosh is the Treasurer of Trafford Liberal Democrats and was the Liberal Democrat candidate in Bolton West in the 2024 General Election.
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8 Comments
Thank you for a most important which, if followed up by policy developments, would enhance our inequitably and deviously taxed country and reduce queues at food banks etc.!
Equitable and transparent taxation would also reduce/better manage inflation as attempting/pretending to deal with it by increasing bank rates, which hit the not wealthy and increase the flow of money to wealthy rentiers, obviously has not and does not work efficiently.
Here is a supporting article:
https://www.taxresearch.org.uk/Blog/2025/03/30/why-wont-labour-tax-wealth/
Your rightly express caution about a wealth tax. I’ve just put this comment on an earlier post by Mark V, but, if he is still the editor for the day , I hope he will think t is worth repeating. The problem with a wealth tax: is that wealth It is difficult to calculate, the very rich are good at hiding their wealth ,and can shift it to other jurisdictions.
There’s a much stronger case for that good old Liberal favourite , a land tax. Land is difficult to hide and tends to stay where it is.
That might take some time to implement, so in the short run why don’t we plug the alternatives suggested by our spokespersons in the debate on the spring Statement: tax the big banks, the social media giants and the online gambling companies to fund adequate help for our disabled citizens and the increased defence expenditure thought necessary to cope with the current international situation?
@Peter Wrigley
Re land value tax
That might take some time to implement”
Might that be an excuse for never starting on the project?
Perhaps we could start by looking at the properties in the current highest council tax band, revalue those (some may have been redeveloped with several smaller properties on the site – those would be given individual land values). Then, having learned some lessons, move on to the next council tax band.
If a business owner can prove that 75% of their time and 75% of their income relates to production in their business, should they also enjoy 100% Inheritance Tax exemption?
Or does this special treatment only apply to business owners who may be millionaires but are also farmers….?
Sorry, you lost me with your opening comparison. You’re comparing overall with marginal and income with capital gain.
@MikePeters
Re Comment on 75% test.
If the farmer is milking at 6am and spending 75% of their time working on the farm, and 75% of their overall income comes from the farm, and they can prove this for a number of years, they can claim exemption.
In the case of, say Jeremy Clarkson, this would not be an option.
@Nonconformistradical. Yes, I agree that recalculation the bands for Council Tax, and adding a few more, would be a desirable (not all that ) short-run way of raising necessary public funds.
However, in the long run (but before we’re all dead) we need a complete sweep of the UK’s tax system. It has, like Topsy “just growed” and is full of anomalies, inconsistencies and exceptions which as often as not don’t produce the effect for which they are intended.
A genuinely radical government would muddle along as best it could, adapting the existing system, but at the same time set up a Commission, preferably advised by Citizens’ Assemblies, to recreate a system from scratch.
I hope this is what a Liberal Government would do, and something on which we would insist before going into coalition with anyone else.
The aim of the Commission should be to move taxes way from “desirables” (employment, investment, creativity, most economic transactions,) to “undesirables” (pollution, excessive use of non-renewable resources, congestion and “rent” as economists understand it (roughly “unearned income” including monopoly profits) A land tox (a along-side council tax, or instead of it?) should scorer highly.
I’ve no idea how this conforms to our current taxation policy, but hope the Liberal Democrats will be “up for it.”
@Peter Wrigley
“However, in the long run (but before we’re all dead) we need a complete sweep of the UK’s tax system. It has, like Topsy “just growed” and is full of anomalies, inconsistencies and exceptions which as often as not don’t produce the effect for which they are intended.”
I agree that’s the real problem. But it’s become a problem which is regarded as ‘too big to fix’.
So no-one ever thinks seriously about doing it.
We have to do something about it or it will only get worse.
I would suggest there is a need to identify some aspect of the wider tax (i.e. not just income tax) system which could be addressed in isolation and removed or modified without impacting other aspects of the system – then get on and do it.
But doing that must not benefit the wealthy at the expense of the less wealthy.