Date: November 1, 2023
In a recent report published on Wednesday, the Centre for Progressive Policy (CPP) has issued a stark warning to the next government, stating that a substantial increase in public spending is imperative to maintain current standards of public services. The think tank argued that the government would need to allocate an additional £142 billion annually up to 2030 to keep up with the rising costs associated with an ageing population.
The CPP’s report emphasized that this surge in spending would necessitate an increase in overall tax revenues, pushing the tax burden to 38.8% of GDP, merely to keep the budget deficit under control. However, the think tank suggested that these changes need not be solely reliant on income tax hikes; instead, the tax system could be restructured to focus more on wealth.
One of the proposals put forth by the CPP is the introduction of a one-off “millionaire’s tax” on individuals with assets exceeding £1 million. Additionally, the think tank recommended aligning capital gains tax rates with income tax rates to generate the required revenues. These suggestions come amid concerns that the current tax burden, standing just under 37%, is already at its highest level in decades.
Despite the call for increased taxes, prominent figures within the Conservative party, such as Liz Truss, have advocated for tax cuts. Chancellor Rishi Sunak expressed confidence in delivering tax cuts before the next election, provided inflation continued to decrease.
Labour, on the other hand, has been hesitant to commit to tax hikes. Shadow Chancellor Rachel Reeves ruled out implementing a wealth tax and equalizing capital gains tax and income tax. Instead, the party has focused on reforming public services to save costs.
The CPP’s report also highlighted the need for an investment package of around £19 billion annually to ensure progress rather than mere stagnation. The think tank proposed directing these investments towards net zero industries, education, childcare, and healthcare. By improving productivity and fostering inclusive economic growth, the government could potentially offset the increased tax burden on citizens.
Charlotte Alldritt, Chief Executive of the CPP, stressed the importance of a realistic approach to tax and spending. She stated, “Labour may see a focus on fiscal discipline as politically imperative in opposition, but to make any progress on reversing our economic stagnation, it will need to take a longer-term view of how spending can contribute to fair growth.”
The CPP’s recommendations also found support from former Conservative treasury minister Lord O’Neill, who emphasized the necessity of considering long-term economic benefits rather than short-term debt consequences when making policy decisions.
As the political landscape grapples with these challenges, the next government faces a daunting task in striking a balance between sustaining public services and easing the tax burden on citizens, all while planning for a prosperous and inclusive future.