You don't have to cut teachers' pay or help for the world's poorest.
Due to the government’s shambolic handling of coronavirus, the UK has one of the highest death rates in the world and is one of the countries whose economy has struggled the most.
As a result, tax income is down, spending is up and we’re spending more than we’re taking in. That’s known as a deficit and we’re borrowing to fill the gap. By 2025, that gap will be between £21 billion and £46 billion.
Now, having a deficit isn’t the end of the world. It’s pretty normal. Since 1980, there’s only been five years without a deficit – twice under Thatcher and three times with Blair. And, having a deficit now isn’t as expensive as normal as borrowing is very cheap at the moment.
Nevertheless, Rishi Sunak has said he wants to ‘balance the books’ and Conservative ideology holds that tax rises or spending cuts are the only way to do that. At yesterday’s spending review, he held off on a lot of unpopular decisions he’s likely to make in the next few years.
But he did do enough to show whose shoulders the books will be balanced on. Most public sector workers were hit with a pay cut and aid for the world’s poorest was slashed.
So here’s a few helpful suggestions of how those who pay for the crisis’s economic impact are those who can most afford it. These measures could bring in around £41.5 billion, enough to comfortably wipe out that deficit.
- Clamp down on tax avoidance – £15bn
According to Her Majesty’s Revenue and Customs, £31bn of tax goes unpaid every year while other models put the figure far higher. This is because of legal tax avoidance and illegal tax evasion as well as honest mistakes from people failing to work out what they owe.
There’s always going to be some tax which goes uncollected but if HMRC was better funded, it could claw more of this back. If it could cut the tax gap in half, that would rake in around £15bn a year. That’s enough to pay for Johnson’s ‘green industrial revolution’ with a few billion left to spare.
2. Tax the top 2% of earners – £5.4 billion
Currently, the 2% of the population earning over £80,000 pay just 40% on that income up to £150,000. And the less than 1% of the population who earn more than £150,000 pay just 45%. By increasing these figures to 45% and 50% respectively, the last Labour manifesto estimated you could raise £5.4 billion.
3. VAT on private school fees – £1.5 billion
The 7% of parents who send their kids to private school currently don’t pay any VAT on those fees. Changing this could raise £1.5 billion, according to analysis from the last Labour manifesto.
4. Reform Capital Gains Tax – £14 billion
Capital Gains Tax is a tax on the profit made when an asset you own increases in value. It does not include your main home but does include any other properties you own. Only around 250,000 people in the UK pay it.
According to the Office for Tax Simplification, if Capital Gains Tax rates were aligned with income tax rates, the government could make £14 billion a year more. However, they do warn this figure could be reduced by taxpayers finding ways round the rules.
5. More VAT on luxury goods – £1.6 billion
The VAT on luxury goods is currently the same as on standard goods – 20%. Increasing this to 30% could bring in £1.6bn a year. Of course, there would be debate and lobbying on what a ‘luxury good’ is but the line would have to be drawn somewhere.
6. Scrap entrepreneurs tax relief – £4 billion
Entrepreneurs Relief was introduced by Gordon Brown and expanded by George Osborne. It means that people selling their stake in a business often pay less Capital Gains Tax than they would otherwise.
The government claims this incentivises people to start businesses but, according to the Association of Accounting Technicians, most business-owners haven’t heard of the scheme until they’ve already decided to sell their stake.
The Resolution Foundation has called it the “worst tax break” as they say it helps just a few wealthy individuals. It costs around £4bn a year.
Joe Lo is a co-editor of Left Foot Forward
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