As published on publicfinance.co.uk, Tuesday 12 January, 2021.
A reform of current taxes would be more efficient and raise more money than a new levy based on wealth, according to the Institute for Fiscal Studies.
In a presentation to the Local Government Association’s annual finance conference, David Phillips, associate director at the IFS, warned that a wealth related levy could harm the UK’s economic recovery from the pandemic.
He said that trying to capture tax on people who have saved during the pandemic could have a dampening effect on the economy, as the recovery will be reliant on the public spending money.
Phillips said: “Rather than trying to introduce a new wealth tax for a long-term boost to government revenues, it actually makes sense to reform some of the existing taxes, including income tax, capital gains tax, council tax, inheritance tax, so they are actually more efficient, fairer, and raise more for the long-term.”
A wealth tax is a one-off levy paid based on a person’s assets and can include properties pensions and business and financial assets.
A similar policy was introduced in Argentina last month, to help fund its Covid-19 response.
In its economic review, which was released alongside the Spending Review, the Office for Budget Responsibility said the government will borrow a peacetime record £394bn to cover Covid-19 spending.
As a result, the OBR said the government will need to either tax rises or spending cuts of between £21bn and £46bn, by 2025 to keep debt in relation to GDP at around 100%.
At today’s conference, Sarah Pickup, deputy chief executive of the LGA suggested that upcoming government reviews on local taxation should seek to reduce council’s reliance on business rates.
She said: “We think that that [business rates] review needs to be used to determine that and develop the new sources of finance for councils.
“We need to be less dependent on business rates. We can see that there have been so many reliefs and there is probably an over dependence and it does not match our spending trajectories.”