The Taxing Wealth Report 2024 and the Budget
In anticipation of the UK budget this week, I thought it important to provide a summary of the work that I have been doing on the Taxing Wealth Report 2024.
That report will be published in full shortly. All the recommendations noted below are listed on a single page of the Taxing Wealth Report 2024, from which links to detailed workings are supplied.
Introduction
The Taxing Wealth Report 2024 was written for one primary reason. Its aim was to demonstrate that the claim made by politicians from both the UK's leading political parties that there is no money left to support the supply of better public services in the UK is not true.
The Taxing Wealth Report 2024 shows that there is the potential to raise around £90 billion of additional tax revenue each year from fairly straightforward reforms to the UK's existing tax system.
All of these reforms would result in additional tax being paid only by those who are better off. Unless a person's income comes mainly from investments or rents, very little of what the Taxing Wealth Report 2024 suggests would have very much impact on them unless their income exceeded £75,000 per year. This would, however, be fair. As the Taxing Wealth Report 2024 shows, those with wealth in the UK are massively undertaxed compared to those who work for a living. Correcting this imbalance is entirely appropriate, simply in the interest of social justice.
Importantly, whilst the detailed workings underpinning the Taxing Wealth Report 2024 have required a lot of research, the ideas implicit in the recommendations made are quite straightforward. So, for example, it is suggested that pension tax relief should only be provided at the basic rate of income tax whatever the highest tax rate of the person making the contribution. If that change was made an additional £14.5 billion of tax would be paid in the UK each year.
It is also proposed that national insurance should be paid by anyone on their earnings from work at the same rate, and that the reduction in that rate that now applies for those earning more than about £50,000 a year should be abolished. This might raise more than £12 billion in tax a year, assuming national insurance rates used in 2023.
If an income tax charge equivalent to national insurance was also made on all those with income from investments and rents or capital gains exceeding in combination £5,000 a year, then that simple change might raise £18 billion in revenue each year whilst removing an obvious injustice within the tax system that has also been widely exploited by those seeking to avoid tax.
Aligning income tax and capital gains tax rates when there is no obvious reason why they should differ might raise a further £12 billion of tax year.
If only HM Revenue & Customs could be persuaded (or funded) to collect tax from all small companies that owe it when at least 30% of that revenue is lost each year at present due to under-investment in its collection, then maybe £6 billion a year of extra corporation tax might be collected, plus as much again in additional VAT and PAYE which is also likely to be lost from those companies not paying the corporation tax that they owe.
Charging VAT on the supply of financial services, almost all of which are consumed by those with wealth, might raise £8.7 billion a year, having allowed for existing insurance premium tax payments.
Numerous other, smaller, tax changes could also be made, whilst some inappropriate charges, like those for student loans that only raises £4 billion a year for what is, in effect a tax, could be abolished.
On top of all this, what the Taxing Wealth Report 2024 also shows is that if the conditions attached to tax-incentivised savings in ISA and pension fund accounts were changed, then up to £100 billion of savings per annum could be transferred from their current speculative use to become the capital that is necessary to underpin the transformation of the UK economy. That money could either be invested in our crumbling state infrastructure, or in the transition that is necessary to beat the impact of climate change. Incentives for such tax-incentivised savings accounts now cost £70 billion a year, which is more than the UK defence budget. Almost no social benefit currently arises from this massive subsidy to wealth. In a country where there are £8,100 billion of financial assets, this transformation will not rock financial markets, but it will transform the future prospects of the UK.
That transformation might come in three ways.
Firstly, and vitally, inequality in the UK might be addressed. The tax owing by those on low pay has to be reduced and the benefits that they enjoy have to be increased if everyone is to have a chance of fully participating in the UK economy without the stress that millions now suffer.
Secondly, if the UK government undertook measures to tackle inequality and simultaneously spent more on recruiting suitably qualified people to supply UK government services of the standard that is now needed to meet our current health, social care, housing, justice and environmental crises, then the boost to household incomes that would inevitably follow would provide the basis for the growth that every government claims to be necessary. Growth cannot come before that spending takes place. It would, as a matter of fact, follow it.
Thirdly, the UK has under invested in its own future for decades, having placed all its savings into the care of the City of London, who have used them for speculative activity rather than for the creation of real economic activity. Correcting that by redirecting tax incentivised savings into investment in the essential underpinning of the economy that we need might, yet again, generate new income for the UK's private sector and households, whilst ensuring that we are equipped for the very different future that we must face.
Having money available will not guarantee that the UK will have a better future. However, without there being money available, that future is not possible. The Taxing Wealth Report 2024 demonstrates that more than enough money is available to transform our society, to increase the incomes of those in need in the UK, to create growth, to stimulate employment, to increase the well-being of our companies, and to underpin the investment that we require. No politician can now say otherwise. The fact is that the choices that they can make are explained in this report. If they do not wish to use the options that it demonstrates are available, it is for them to explain why. However, what none of them can ever claim again is that there is no money left, because it is there for them to ask for whenever they wish to use it, and that is precisely why the Taxing Wealth Report 2024 matters.
Summary of proposals
The Taxing Wealth Report 2024 is made up of a series of proposals for the reform of taxes and the administration of tax in the UK, with some selected supporting explanatory notes also being added.
These proposals and the value of the reform that they suggest are as follows:
All of these proposals are summarised in a single page of the Taxing Wealth Report 2024 with links being provided there to the detailed workings that support the suggested benefits arising.
A PDF of this blog is available here.
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Buy me a coffee!
Excellent, well timed summary. I’ll share it widely.
Thanks
I think many of us are in awe of your effort and dedication. It is, of course, not just the last year’s work but the culmination of many years of engagement with the issues. It is a magnificent achievement.
Thanks
The final, full, version is now being worked on.
Why isn’t 0.7bn less being delivered to charities a good thing?
Sorry!
That should be ‘Why IS £0.7bn less being delivered to charity a GOOD thing?
The adjutsment is to tax relief, not what goes to charity. The two are not the same.
I’m pretty sure that many higher rate tax payers adjust what they donate to account of any tax reclaim, so that they ‘incur’ the same cost and the charity benefits from ALL of the tax relief.
If the tax relief is reduced, so is the amount sent to charity.
It seems highly unlikely that the change you propose will raise the amount that you claim and not adversely impact the amount going to charity.
Thye evidenvce from research is that they do not
HMRC founbd that
You are wrong
The simple point is that making any of these changes is a policy decision. Equally, not making these changes is a policy decision.
While hemming himself in with self-imposed so-called “rules”, Chancellor of the Exchequer actually has a great deal of latitude to make the tax system more equitable. Or not.
It is said that the UK has a historically high level of taxation compared to GDP (which necessarily involves both a numerator and a denominator).
First, tell that to anyone paying very high levels of income tax, or 30% CGT or 25% VAT or 52% corporation tax, in the 1970s!
How can that be? Tax is a product of rate and base.
What is just as important as the overall rate of tax is the incidence. Some people today are paying proportionately more but a few are paying less. The tables have been tilted in favour of the wealthy and capitalism is doing its job of delivering returns to capital, sucking all of the wealth ever upwards. It is simply not sustainable.
Speaking as somebody affected by the proposed reforms (VAT on financial services) I have no problem with it. If anything, the main impact of VAT imposition would be on the day traders/high speed traders – & thus perhaps it would reduce market volatility.
Richard,
Please can you link to then HMRC findings on this topic – I am not sure how this has been assessed?
Google is as available to you as me
I have previously linked it on the blog
Jack Bauer, or is it Bower? You can’t get your name right, yet you want to tell us about taxes?
Any analysis that assumes that people won’t change their behaviour in response to higher taxes is fundamentally flawed from the outset.
The fact that many of your proposals are inconsistent and do not apply equally (because they treat different forms of wealth differently or because they have different impacts depending on whether you work in the public or private sector) also makes them impractical and unfair.
I will tell you the behavioural respinse. Almst without exception the ec0onomic boots will maassively outweigh any pettiness from the wealthy.
Next?
On the contrary, I think that the proposal introduce a clarity and consistency to the tax system.
Of course, there will be “winners and losers”… and the losers will fight their corner but to call them “impractical and unfair” is wide of the mark.
I would add that the changes would make sense even if we weren’t looking at this as a revenue raising exercise. You could make the changes and then cut the headline tax rates accordingly.
A note to Rachel Reeves:
Dear Rachel,
As you know George Osborne is advising Jeremy Hunt on the budget. George loves his little “budget traps”.
His latest whiz, knock 2 pence off income tax and make the saving by reducing local government funding by a further 15/17% in 2025.
It’s a game. Why don’t you call the Tory bluff?
Tell the truth, George created the current local government funding mess ( and the NHS/Education/Social Care crises). How?
He cut funding by 40%. then using the Public Works Board funded the local government dive into investing in commercial property and other mad cap get rich schemes encouraged through the Local Government Act 2011 to replace the funding he cut.
Yes, George cut funding then encouraged spending using government money.
I don’t recall anyone claiming that this self imposed fiscal rule was “normal”.
How to find an instant £45bn a year to fund local councils?
You may not know but in 2006 the then Labour government decided to pay interest on the deposits lodged by the banks at the Bank of England and this interest is still being paid out.
The UK is in a very small group of economies that do this.
Keep this up, well you do the maths.
Strangely fellow tax payers when they learn of this are livid, ” what we saved the banks and we are still subsiding them by how much!”
There you are an instant £45bn to play with. Somehow I do not expect the sky to fall in if you stopped the interest payment.
I know that you accept the fiction that the UK is a family that must balance its family budget.
Let’s be honest this is not correct, When you become Chancellor you will be able to create funding using quantative easing.
Treat funding the recovery of the UK economy as a national emergency. No one batted an eye lid when QE was used in the Financial Crisis and the pandemic.
Joe Biden has stimulated the US economy. What is there stopping you doing the same?
Regards.
John
I like it
This is excellent – and well timed. Thank you.
What is really important to note is that the vast majority of the changes you suggest are very simple to put in place; changing of tax rates and thresholds is a simple process that (even) HMRC can manage. Nobody can argue that this is not practical.
Also, I suspect that any disinterested party would look at these changes and say they make sense on the grounds of “fairness”. Of course, wealthier people are not disinterested – they certainly DO have a dog in the fight – but most ordinary working folk would be largely unaffected…. so I do expect this to gain traction. It should.
The questions I ponder are….
Which of these measures are still possible under a Labour government (ie. which have not been specifically excluded).
Which of these could be “U-turned” on by a new Government under “circumstances have changed so policy must change”
Clive
The ISA and pension related reforms are entirely possible.
So is anything on reliefs
The VAT ones may not be
CGT alignment is not
NI chafes are, as are CT and most of the IHT ones
And the could fund HMRC
Richard
Richard
You mentioned in an earlier exchange that your pension tax relief changes won’t apply to employer contributions. If a higher rate taxpayer knows that contributing to their pension becomes less tax efficient, there’d be nothing to stop them agreeing with their employer to reduce their salary and have that reduction paid directly by the employer into their pension. That’s £14bn gone from your numbers. That’s not ‘petty’, it’s sensible.
If you do include employer contributions in your changes, then every public sector employee paying higher rate tax is going to be landed with a huge tax bill because of the high rates of employer contributions to those pensions.
I’d be interested to know which of those approaches you’re thinking of. A simplistic way for everyone to avoid the higher tax charges or higher taxes for public sector employees.
That’s just one specific thought.
Another more general is that if you increase taxes, it reduces spending. Someone with less after-tax income will have less to spend or invest. Other areas, from pensions, to ISAs to simply how much they spend down the shops will be reduced. Tax take in other areas goes down. It’s facile to suggest that every one of your tax plans won’t have an effect on other areas and so facile to suggest that this will result the amounts you claim will be paid in ‘extra’ tax overall. Because none of your tax plans involve creating more, just shifting it around. With, I suppose, the justification of you decreeing that the money will be more ‘wisely’ spent by Government than by people when there’s not the slightest bit of evidence to suggest that.
Then you glibly dismiss the inevitable behavioural changes as ‘pettiness’. Which rather shows how ‘glib’ your entire report is.
As for the £70bn a year from ISAs, that’s the most laughable suggestion of all as it completely ignores that sums are withdrawn from ISAs every year. In some years in the last decade, more was withdrawn from ISAs than invested. To suggest that £70bn represents additional money to invest every year is ridiculous (unless you plan to ban people from withdrawing from their ISAs – which I wouldn’t put past you – in which case, see how much you get invested in them on those terms).
Have you heard of anti-avoid provisions?
And why would the vast majority of employers want to inctease their emplpyment costs?
And since employer contributions will not change from now that’s another claim you have made up which will not happen.
And as for taxing wealth – you do realise wealthb is not spent but nfudns redistributed – as recommended – would be?
What more can you get wrong is what I want to know?
Then there is the ISA issue – where your claim does not stack with official data – I have done the research
But I acknowledge there is recycling of funds – the £70 billion aditiona might only lasst for a decade or so
“if you increase taxes, it reduces spending”
Ain’t necessarily so. If you are taxing the wealthy beyond their usual level of conspicuous consumption then you simply reduce the sums they are squirreling away as “savings” – whether offshored or not.
Of course, these savings may be gambled in the markets or invested in the productive economy, the latter being considerably less likely if you take a look at the UK’s investment record in the last two decades or so.
Taking surplus savings out of the economy, as the very wealthy tend to do, also reduces aggregate demand, as any ful kno, and which JMK discussed at some length. This tends to have a deflationary impact.
“none of your tax plans involve creating more, just shifting it around”.
Isn’t that what governments do every day ?
They target state expenditure in a managed market economy, directing it to their priorities with the aim of improving or maintaining services or infrastructure and with somw canny “shifting around” may even promote knock on growth, through the multiplier effect.,
Surely fewer luxury yachts, but more MRI scanners* would be a highly desirable outcome of government taxing and spending programmes ?
*I declare myself as one who has previoously worked in the yachting industry but who has needed several MRI scans in recent years, so you may take this example as my personal confirmation bias, just as your post is riddled with unstated and questionable assumptions.
Thanks
And a lot to agree with
Tony …good comments. The taxes permit the reallocation of resources to the priorities that Richard says we must address. Keynes addressed the reallocation of resources in How to pay for the war
https://en.m.wikipedia.org/wiki/How_to_Pay_for_the_War
Excellent Richard!!!
How Keynesian of you – “Growth cannot come before that spending takes place. It would, as a matter of fact, follow it.”
Keynes said the increase in income and saving come after the increase in investment – “Increased investment will always be accompanied by increased saving, but it can never be preceded by it. Dishoarding and credit expansion provides not an alternative to increased saving, but a necessary preparation for it. It is the parent, not the twin, of increased saving.” (Keynes 1939)
Any indication Starmer and Reeves will take any notice of this very useful report? I have zero confidence in either exercising moral or common sense!
I can live in hope.
The pigouvian approach can be used for housing too, both for collecting taxes and ensuring the investments in speculation and rentier economics are addressed. This point is supported by the Wall Street Journal video, ‘The Invisible Role Taxes Play in America’s Housing Shortage’.
The land value tax discourages people from hoarding and speculating on land. It taxes hoarding and reduces tax on construction
https://www.youtube.com/watch?v=gJqCaklMv6M
If only Labour would at least consider some of this. Keep trying Richard.
On a tangentially related issue, George Monbiot is doing a presentation of the history of neoliberaism on Wednesday evening .Hes usually good value
https://www.theguardian.com/guardian-live-events/2024/feb/19/george-monbiot-how-neoliberalism-controls-our-lives
Brilliant, Richard! Thank you for all your hard work.
What is ESSENTIAL is that every Labour MP gets a physical copy of your report. A whip-round from your subscribers or a Crowdfunding exercise required maybe. Starmer/Reeves/Jones need advanced copies.
They won’t read 130,000 words….
I am writing a short form….
Tabulating – as you have done – and presenting in a digestible form – as you say you’re going to do – is so important. It’s also crucial that it’s disseminated widely. SO important to get it out to as many people as possible. There’s a need to know and a ‘desperately want to know’. People have been fed lies, talked down to and deliberately misinformed for too long.
Thanks
IMHO, a decent government (not that we have any prospect of that) could sensibly implement most of these proposals, even if that wasn’t your intention; and many of them do work better in combination with one another. The only big one (in term of annual value) that seems “difficult” is charging CGT on the final disposal of a main home.
Would this be a good moment to question why you *haven’t* included a couple of proposals I’d have thought might be in here?
First, you’ve proposed bringing pension pots within the scope Inheritance Tax. But there is also currently an odd rule that, generally, if a person dies below age 75, the remaining pension pot can then be withdrawn free from Income Tax, but if they die after age 75, withdrawals are subject to Income Tax. This makes no sense, since pension pots have had Income Tax relief on the way in, in exchange for which there is supposed to be Income Tax charged on the way out, except for the 25% that’s generally allowed as a tax-free lump sum. Age of death should be irrelevant here. Surely all withdrawals on inherited pension pots should be subject to Income Tax, except for a 25% tax-free lump sum (unless the deceased already took this before their death, i.e. when the pension pot is “crystallized”).
Second, you’ve proposed removing various exemptions for Inheritance Tax: as well as for pension pots, for business property and agricultural property. But how about also removing the exemption for lifetime transfers (more the 7 years before death)? I.e. why not effectively go back to the old Capital Transfer Tax? Which is a simple proposal to implement, in the sense that (like some of your other proposals) it’s something that already existed once.
Re your first, I thought it too small to highlight.
Re your second, that is listed in future work. That will be in the final report.