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Economists suggest wealth taxes could generate £10bn to address Tory budget deficit

July 29, 2024

New chancellor Rachel Reeves announces mandatory housing targets 'to get Britain building again' Rachel Reeves has announced mandatory housing targets and an end to the onshore wind ban to get "Britain building again". The UK's first ever female chancellor said Labour will create a new taskforce "to accelerate stalled housing sites in our country". She promised her government would build 1.5 million homes over the next five years, as pledged in Labour's election manifesto. "We're not in the business of reneging on our manifesto commitments," she said in her first speech as chancellor after Labour won the general election last Thursday. "We've received that strong mandate. We're going to deliver on that mandate." Ms Reeves announced the government will: • Restore mandatory housebuilding targets • Build 1.5m homes by the end of this parliament - including affordable and council homes • End the onshore wind farm ban • Create a new task force to accelerate stalled housing sites • Support local authorities with 300 additional planning officers across the country • Review planning applications previously turned down that could help the economy • Prioritise brownfield and greybelt land for development to meet housing targets when needed • Reform the planning system to "deliver the infrastructure that our country needs" • Set out new policy intentions for critical infrastructure in the coming months. Commenting on the speech by the Chancellor of the Exchequer, Stephen Phipson, Chief Executive of Make UK, said: “Industry will welcome such a bold statement of intent which is a clear indication of a Government that has well and truly hit the ground running, especially in ensuring that key institutions are focused on promoting economic growth with their shoulders to the wheel. “The current anaemic rate is simply not sustainable if we want the investment in our public services and vital investment in critical infrastructure and, the advantage the UK now clearly has as a stable place to do business and, attract investment, is one we must not waste . An Industrial Strategy will be central to boosting growth, especially working in partnership with Government at national and regional level and, tackling the skills crisis must be at the heart of boosting growth in the first instance, with a fundamental and widespread review of the Apprentice Levy and Technical Education system as a starting point. Additionally, the ambitious target for new homes can be the catalyst to unlock the potential of fully modular homes built in British factories. “Turning the growth taps on will not be easy in the current uncertain international climate and a difficult inheritance. But, industry will commend this announcement that makes quite clear that it is the laser like focus of the new Government.” On Housing, Daniel Paterson, Director of Policy Make UK Modular added: “Make UK Modular looks forward to working with the new government on their ambitious building agenda. The Labour Party laid out a bold plan during the run-up to and throughout the election campaign and we welcome the Chancellor's statement today in regard to growth; making homes and infrastructure building central to this. Modular and MMC leaders can and will play their part in realising the growth opportunities available and helping to reach the target of 1.5 million new homes by the end of this parliament. “The Chancellor's commitment to reinstating housing targets, new funding for 300 new planning officers and overhauling the UK's antiquated planning system - issues that Make UK Modular have long called for action on - is both welcome and overdue. “The planned consultation on the National Planning Policy Framework and the drive to adopt universal coverage for local plansis also helpful in the joint goal of getting Britain building again, creating the homes so desperately needed around the whole of the country.”

Rachel Reeves could swiftly find approximately £10bn annually to address half of the fiscal deficit left by the Conservatives by increasing taxes on soaring levels of unearned wealth, according to leading economists.

New research by the independent Resolution Foundation, published today, reveals that while Britain is a nation of “booming wealth,” its wealth taxes are “busted,” presenting an opportunity for the Chancellor of the Exchequer to secure desperately needed funds by taxing the richest.

The report highlights that wealth levels have surged from four times the national income when Labour was last in power to six times the national income today, despite recent interest rate hikes.

However, the study notes that Britain suffers from significant “wealth gaps,” where a family in the top 10% of the wealth distribution holds £1.3m more per adult than a family in the middle.

Overall, the Resolution Foundation’s study shows that wealth inequality is nearly double that of income inequality. It points out that on the eve of the pandemic, three in ten families had less than £1,000 in savings, leaving them without a real safety net.

This vulnerability was starkly revealed during the cost of living crisis, as many families struggled with rising prices and household bills.

The report indicates that while wealth has become increasingly concentrated at the top, wealth-related taxes have remained low, at around just 3% of national income.

Key wealth taxes, such as inheritance tax (IHT) and capital gains tax (CGT), are deemed poorly designed to tax wealth effectively. The report suggests these are ripe for reform in the Labour Chancellor’s first budget this autumn, aiding Reeves in achieving her fiscal goal of reducing debt as a proportion of GDP by the end of the parliamentary term.

The report notes that IHT offers numerous generous reliefs, allowing the very wealthy to pay a low effective rate. Limiting or ending these reliefs could generate up to £2bn annually while promoting fairness.

Additionally, aligning capital gains tax rates with income tax rates could reduce incentives for the wealthy to manipulate remuneration to avoid tax. Raising CGT rates on shares to match the dividend tax rate could, for instance, generate up to £7.5bn annually.

Combined, these two measures could bring in £9.5bn a year, supporting Reeves as she tackles challenges in public spending.

Simon Pittaway, Senior Economist at the Resolution Foundation, commented: “For decades, Britain has enjoyed a wealth boom, only slightly diminished by recent interest rate increases. Consequently, wealth has grown from four times national income when Labour was last in office to six times national income today.

“However, too many families have been left out of this wealth boom. Over one in four people say they couldn’t cover an unexpected expense of £850, highlighting that too many lack a basic financial safety net that even moderate wealth levels can provide.

“Wealth taxes have failed to keep pace. Modernising our wealth taxes, eliminating leakages, and reducing distorting behaviours could enhance our tax system’s efficiency and generate crucial revenue for the exchequer.”

Stuart Adam, Senior Economist at the Institute for Fiscal Studies, added: “The government could certainly raise a few billion pounds from reforms to capital gains tax and inheritance tax.” He noted that both taxes currently include reliefs “that are hard to justify,” such as the exemption of pension pots from inheritance tax at death.