Labour has been urged to add two higher council tax bands and introduce steeper levies on empty homes in the Autumn Budget on October 30th.
Within five years meanwhile council tax should be abolished entirely, to be replaced by a ‘proportional property tax’.
The calls come from Institute for Public Policy Research (IPPR), which describes itself as a ‘progressive think tank’.
Currently the highest council tax band is on property worth more than £320,000 in 1991.
Capital gains
The think tank called for capital gains and income tax to be equalised in the upcoming Budget.
Currently capital gains on property is charged at 24% for residential property, while the top rate of income tax is 45% (for those earning over £150,000 annually) – meaning an equalisation would significantly reduce the profits made on property for investors who hold them long-term.
Over the five-year period, the think tank recommended taxing all different types of income equally, including capital gains and dividends.
Inheritance tax
The IPPR called for inheritance tax to be scrapped and replaced with a ‘lifetime capital acquisitions tax’ in this parliament.
In October’s Budget it said the government should cap inheritance tax reliefs on business and agricultural transfers to minimise tax avoidance now.
Wealth inequality
The think tank said the UK is suffering from strong wealth inequality, and the current tax system is a significant reason why.
The root of the problem, according to the IPPR, is income from work is generally taxed more highly than from wealth, meaning assets like property and stocks.
This is widening inequality geographically, the think tank said. As it stands 40% of investment income in the UK is generated in London and the South East alone, despite the region only accounting for a quarter of the population.
Comments from the researchers
Marcus Johns, IPPR north senior research fellow, said: “The tax system’s bias towards wealth is one of the most significant barriers to levelling up that we face.
“Our research shows that we under tax income from wealth compared to income from work and this special treatment benefits people living in the richest parts of the country like London and the South East. This is not just unfair, it’s a handicap on our efforts to rebalance wealth and opportunity between the regions.
“The evidence shows that 60% of all private wealth in the UK is inherited rather than accumulated through work. That means people who inherit very little, or nothing, face an uphill task to build the wealth needed for a comfortable lifestyle.
“We need to level the playing field on tax, to reflect the value we place as a society on work and productive wealth creation as opposed to wealth extraction.”
Dr George Dibb, associate director for economic policy at IPPR, said: “We propose a number of reforms, including equalising capital gains tax with income tax.
“By taxing wealth in a fairer way, government can help regionally rebalance our economy, correcting widening inequalities in wealth, and consequently in health, opportunity and living standards.”
Labour warns of ‘painful’ Autumn Budget
Prime Minister Keir Starmer said the “broadest shoulders should bear the heavier burden” regarding the Autumn Budget, which clearly telegraphs some tax increases on the wealthy.
Chancellor Rachel Reeves previously accused the Conservatives of creating a £22 billion black hole in public finances, which many think Labour will use as justification for upping taxes.
Given that inheritance tax and capital gains are two Labour didn’t rule out raising prior to the election, many commentators think a hike is on the cards on October 30th.
However, it remains to be seen whether this government would consider radical changes, like scrapping council tax or equalising the taxation of all income, in line with the Institute for Public Policy Research’s recommendations.
